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Hi Sir,
Could please help me in understanding this particular sentence relating to transfer pricing.
“Including FC in the transfer price invites manipulation of overhead treatment”
How?
Thank you and have a good day ahead!:)
What it is trying to say is that when there are several products, then if fixed costs are included then the total cost of each product would depend on how they chose to charge the fixed costs between each of the products – there is no rule as to how fixed costs should be shares and so they could deliberately charge more or less to a particular product in order to get whatever result they wanted.
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