Question

In keeping with Internal Revenue Code, Clarence Company transfers goods to Marguerite Corporation, its foreign subsidiary, at the price Marguerite will sell the product to its customers, less the industry's average gross profit margin of 30%.

(A) What method of transfer pricing is Clarence using?

Answer 1

resale price method

Step-by-step explanation:

• The resale selling price method (RPM) is one of the five primary transfer pricing methods, which are used to ensure that transactions between related companies take place at "arm's length" pricing.
• The resale price method is also known as the "resale sales minus method". As a starting point, a subsidiary takes the price of selling a product to a third party. This value is called "resale selling value".
• The resale value method is a traditional transaction method. Its application is seen as a tool for determining arm length value for intercompany controlled transactions under review for transactions between unrelated parties.
• Related to the Irish supplier The reselle pricing method can be applied to ensure that it exists. The price charged to the distributor is appropriate. Under RPM, the gross margin earned by a US supplier must be the same as a transaction with its third party supplier.