Comparability when applying the cost plus method should take into account similarity of functions, risks assumed, contractual terms, market conditions, business strategies as well as any adjustments made to account for the effects of any differences in the aforementioned factors between the controlled and uncontrolled transactions. As with the resale price method, fewer adjustments are needed to account for product differences compared to the CUP method.

1. The method used in determining costs and the accounting policies should be consistent and comparable between the controlled and uncontrolled transaction, and over time in relation to the particular enterprise. The costs referred to in the cost plus method is the aggregation of direct and indirect costs of production. Usage of other costs must be well justified and may be considered only if they result in a more accurate estimate of the appropriate margin. In computing costs, the practice must be in accordance with generally accepted principles or normal accounting standards in Malaysia.
   
   
   1. Direct costs are costs identified specifically with a particular activity including compensation, bonuses, travelling expenses of employees directly engaged in performing such activity, or materials and supplies consumed in providing the activity. In determining the cost base incurred in providing an activity, costs that do not relate to the service under consideration must be excluded and the costs must be consistent with those incurred in comparable transactions.
      
      
   2. Indirect costs are costs not specifically attributable to a particular activity but nevertheless relate to direct costs or relate to the process of the activity. These include utilities, rental, supervisory and clerical compensation and other overhead costs of the department incurring the direct costs. Indirect costs also include an appropriate share of costs of the supporting units and departments (e.g. accounting and secretarial units etc).
      
      
2. The determination of costs is important in the application of CPM where the comparable mark up is to be applied to a comparable cost basis. For example, an independent supplier who leases its business assets may not be comparable to a supplier in a controlled transaction who owns its assets. Adjustments must be made to eliminate the differences in these costs.
   
   
3. It is also important to consider differences in the level and types of expenses (operating and non-operating expenses including financing expenditures) related to the functions performed and risks assumed by the parties or transactions being compared. Consideration of these differences may indicate the following:
   
   
   1. If expenses reflect a functional difference which has not been taken into account in applying the method, an adjustment to the cost plus mark-up may be required;
      
      
   2. If the expenses reflect additional functions that are distinct from the activities tested by the method, separate compensation for those functions may need to be determined. Such functions may for example amount to the provision of services for which an appropriate reward may be determined. Similarly, expenses that are the result of capital restructures reflecting non-arm's length arrangements may require separate adjustment;
      
      
   3. If differences in the expenses of the parties being compared merely reflect efficiencies or inefficiencies of an enterprise, as would normally be the case for supervisory and general and administrative expenses, adjustments to the gross margin may be inappropriate