cost-plus transfer prices

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Transfer prices set by cost-plus pricing, which include a mark-up to provide a profit for the supplying division. When variable costs rather than full costs are used in this calculation, the mark-up will need to be higher to cover both the fixed costs and a profit margin. This method involves a problem for managers, as cost-plus transfer pricing does not identify the output levels that will maximize prices.

Subjects: Accounting.

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