Question

Which method of determining transfer pricing involves dividing all fixed and variable expenses for a period into the number of units produced?.

Answer 1

Actual full cost method of determining transfer pricing involves dividing all fixed and variable expenses for a period into the number of units produced.

The full end-to-end value of producing goods or services is calculated using the full costing approach. All direct, fixed, and variable overhead costs are attributed to the final product when the whole costing approach is used. These varied costs go through inventory accounts with the product in full cost accounting up until the product is sold.

These will subsequently be recorded as expenses in costs of goods sold on the income statement. Full costing has the advantages of greater openness and compliance with reporting regulations. The potential for skewed profitability in income statement and the difficulty in estimating cost fluctuations at various production levels are drawbacks.

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