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Transfer Pricing in International Business by Geoff Turner

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Knowing the Cost of Things

It is probably best to start this section by asking what is meant by cost? The answer to this question may seem, at first sight, very obvious. Most readers will say that cost is how much was paid for an item of goods being supplied or a service being provided. Unfortunately, it is not that simple. In the context of our organization, cost may be explained as the valuation in money terms of the effort, material, use of long-lived resources, consumption of utilities, wasted time, risks incurred, and opportunities foregone in making a product or service available to our customers.

For all organizations, one of the key essentials in determining our selling prices is to know the total cost of each of our products or services. ...

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