A cost-based transfer price should be based on standard unit costs,not actual costs.

Question

Quizplus · Accepted Answer

A cost-based transfer price should be based on standard unit costs, which are pre-determined estimates of the costs of producing goods or services. Actual costs may vary due to factors such as changes in input prices, production efficiency, and other variables, and therefore may not provide an accurate reflection of the underlying cost structure. Using standard unit costs, on the other hand, allows businesses to establish a consistent and predictable transfer pricing mechanism that is based on reasonable estimates of the costs involved.

A Cost-Based Transfer Price Should Be Based on Standard Unit