In accounting and tax, transfer pricing refers to the systems and procedures for pricing transactions between enterprises or among owners of entities under common control or
ownership. It refers also to the cost associated with transferring a business entity from one jurisdiction to another, for example, from an existing domicile to a new domicile.
Transfer pricing is a technique of determining the value of an asset, property, or service as an input in determining its price in a transaction. It is based on the concept that price is equal to cost
plus income or profit. The concept of transfer pricing is not unique to accounting and tax. In almost all industries, the process of transferring ownership or controlling a product, commodity,
or service is called a transfer.
The term “transfer pricing” comes from a type of business which is called transfer pricing. This type of business is concerned mainly with pricing transactions involving a product, for example,
an airline passenger’s ticket. This pricing involves the determination of the actual cost of airfare, whether it be fixed costs or variable costs.
Transfer pricing is also known as the process of price discrimination. This is a process by which the transfer of an ownership stake, or control, of a product is treated as if it were a separate unit
sale in a market or firm. Transfer pricing helps the business owner to evaluate the relative worth of his product in comparison with competing products, so that his decision to sell it is made on its
Price discrimination is a major part of the economic theory of supply and demand. If people know the value of a product to them, they will be willing to pay a lower price in order to acquire it. This
principle applies equally to business and consumer products, and any product or service that may have an economic advantage over another.
Cost of production analysis is an important tool used in tax and accounting. Cost of production analysis is also known as CPA, and it can be used to determine a business’s average costs, the
costs of sales, the costs of goods sold, or even to determine the price of a product or service. A cost of production analysis can include the expenses of purchasing raw materials, manufacturing
costs, advertising costs, labor expenses, and even the purchase cost of selling materials. Cost of sales is the most basic form of cost of production analysis. Cost of sales can be
calculated by dividing the total costs incurred in producing a product by the amount of revenue generated by the product, and then dividing the difference in the two figures by the average
number of units produced. The CPA of a product, therefore, is the cost of production divided by the revenue, or sale. Cost of sales provides a measure of the price charged to a customer for a
particular item or service.
Cost of sales is also a measure of the cost of production, but is more complex than CPA. Cost of production is often used as a measure of the price that a company must charge for its goods
in order to produce and distribute the product or service. This means that the cost of production is the higher of the wholesale price or the retail price of the item.
Cost of sales may also be used to determine the price of products for personal consumption, such as when people shop for items on the Internet. The cost of these purchases is the price of
the item, or of its wholesale price, less the cost of production, and the difference between these prices is called the cost of retail.
Cost of sales can be used to determine the price of a particular item for which there are no other costs involved, such as inventory or labor. Cost of production, and cost of sales, together are
known as cost-only pricing and are very similar to the cost-only pricing method used for taxes. Cost-only pricing can also be used to determine the price of a business’s products for resale,
and distribution. The pricing can be calculated by using the cost-only price of a product as a standard and then deducting the selling price of the same item from the total selling price of the
product. This method is commonly used in sales tax. Cost-only pricing can be used in determining the price of a product for direct sales and for resale and distribution through retail
stores, distributors, or distributors and wholesalers, to name just a few.