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Before conducting the research, two main hypotheses were proposed: H1: The majority of Croatian production companies use traditional accounting methods for cost allocation. H2: Direct production costs make up the largest portion within the production cost structure for the majority of Croatian production companies. Because of this production cost structure, modern cost allocation accounting methods would not contribute to more reliable company profi tability evaluation and business decision-making. The research is based on a specifi c sample including every important Croatian public production company. The process of cost allocation process is not easy. It is a diffi cult and complicated procedure that requires the application of appropriate accounting methods. The process of allocating costs to cost objects is realized through the application of certain accounting methods. These accounting methods often cannot provide fair and objective cost allocation because they have arbitrary bases that are not always appropriate.

The main purpose of this paper was to investigate and identify which transfer pricing methods are applied in related companies in Croatia, as well as to give certain recommendations that would improve the control of transfer pricing in Croatia. The primary data for this study were collected through the survey which was conducted on a sample of related companies from the real sector in Croatia in 2008, and again in 2012. Results obtained in this study indicated that the issues related to transfer pricing still are not significantly represented and understood in business practice in Croatia. The research results also showed that the majority of related companies in Croatia apply the cost method of determining the transfer prices. Furthermore, the research results showed that in 2008 the comparable uncontrolled price method was the most frequently used OECD method of determining transfer prices in related companies in Croatia, while in 2012 all OECD methods of determining transfer prices were equally applied.

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