transfer price
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Conner Manufacturing has one plant located in Italy and another plant located in the United States. The Italian plant manufactures a component used in a finished product manufactured at the U.S. plant. Currently, the Italian plant is operating at 75 per cent capacity. In Italy, the income tax rate is 32 per cent; in the United States, the corporate income tax rate is 35 per cent.
The market price of the component is £240 and the Italian plant's costs to manufacture the component are as follows:
Direct materials £60
Direct labour 40
Variable
Fixed overhead 30
Which transfer price would be in the best interest of the overall company?
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- Gregg Manufacturing has one plant located in Belgium and another plant located in the United States. The Belgium plant manufactures a component used in a finished product manufactured at the U.S. plant. Currently, the Belgium plant is operating at 70 per cent capacity. In Belgium, the income tax rate is 30 per cent; in the United States, the corporate income tax rate is 35 per cent. The market price of the component is £280 and the Belgium plant's costs to manufacture the component are as follows: Direct materials £30Direct labour 50Variable overhead 12Fixed overhead 56 Refer to Figure 20-10. What is the minimum transfer price that the Belgium division would be willing to accept? Group of answer choices £280 £148 £136 £92The Burton Company manufactures chainsaws at its plant in Sandusky, Ohio. The company has marketing divisions throughout the world. A Burton marketing division in Lille, France, imports 200,000 chainsaws annually from the United States. The following information is available: U.S. income tax rate on the U.S. division’s operating income 40% French income tax rate on the French division’s operating income 45% French import duty 20% Variable manufacturing cost per chainsaw $100 Full manufacturing cost per chainsaw $175 Selling price (net of marketing and distribution costs) in France $300 Suppose the United States and French tax authorities only allow transfer prices that are between the full manufacturing cost per unit of $175 and a market price of $250, based on comparable imports into France. The French import duty is charged on the price at which the product is transferred into France. Any import duty paid to the French authorities is a deductible expense for calculating French income…Whitehill Chemicals has two operating divisions. Its Formulation Division in the United States mixes, processes, and tests basic chemicals, and then ships them to Ireland, where the company's Commercial Division uses the chemicals to produce and sell various products. Operating expenses amount to $27.0 million in the U.S. and $79.0 million in Ireland exclusive of the costs of any goods transferred from the U.S. Revenues in Ireland are $205 million. If the chemicals were purchased from one of the company's Irish mixing divisions, the costs would be $40.0 million. However, if it had been purchased from an independent U.S. supplier, the cost would be $53.0 million. The marginal income tax rate is 20 percent in the U.S. and 12 percent in Ireland. Required: What is the company's total tax liability to both jurisdictions for each of the two alternative transfer pricing scenarios ($40.0 million and $53.0 million)? Note: Enter your answers in dollars and not in millions of dollars. Total tax…
- The Burton Company manufactures chainsaws at its plant in Sandusky, Ohio. The company has marketing divisions throughout the world. A Burton marketing division in Lille, France, imports 200,000 chainsaws annually from the United States. The following information is available: U.S. income tax rate on the U.S. division’s operating income 40% French income tax rate on the French division’s operating income 45% French import duty 20% Variable manufacturing cost per chainsaw $100 Full manufacturing cost per chainsaw $175 Selling price (net of marketing and distribution costs) in France $300 Suppose the United States and French tax authorities only allow transfer prices that are between the full manufacturing cost per unit of $175 and a market price of $250, based on comparable imports into France. The French import duty is charged on the price at which the product is transferred into France. Any import duty paid to the French authorities is a deductible expense for calculating French income…Spartan Corporation, a U.S. company, manufactures green eyeshades for sale in the United States and Europe. All manufacturing activities take place in Michigan. During the current year, Spartan sold 8,400 green eyeshades to European customers at a price of $ 10.40 each. Each eyeshade costs $4.20 to produce. For each independent scenario, determine the source of the gross income from sale of the green eyeshades. b. Half of Spartan's production assets are located outside the United States.Whitehill Chemicals has two operating divisions. Its Formulation Division in the United States mixes, processes, and tests basic chemicals, and then ships them to Ireland, where the company's Commercial Division uses the chemicals to produce and sell various products. Operating expenses amount to $27.2 million in the U.S. and $79.2 million in Ireland exclusive of the costs of any goods transferred from the U.S. Revenues in Ireland are $207 million. If the chemicals were purchased from one of the company's Irish mixing divisions, the costs would be $40.2 million. However, if it had been purchased from an independent U.S. supplier, the cost would be $53.2 million. The marginal income tax rate is 20 percent in the U.S. and 12 percent in Ireland. Required: What is the company's total tax liability to both jurisdictions for each of the two alternative transfer pricing scenarios ($40.2 million and $53.2 million)? Note: Enter your answers in dollars and not in millions of dollars. Total tax…
- ABC limited (An Australian company) imports die- cast parts from its Chinese subsidiary that are used in the production of children's toys. Per unit, part 126 costs the Chinese subsidiary AUD $200 and AUD $20 to ship to ABC limited. ABC limited uses part 126 to produce a toy airplane that it sell to local stores for AUD $600 per unit. The following tax rates apply: Chinese income tax: 25% Australian income tax: 30% Australian import duty: 10% of invoice price Required: a. Calculate the total amount of income taxs and import duties paid to the Australian and Chinese government if part 126 is sold to ABC limited at the price of AUD $300 per unit b. Calculate the total amount of income taxs and import duties paid to the Australian and Chinese government if part 126 is sold to ABC limited at the price of AUD $400 per unit c. Explain why the results got in part (a) and (b) differNashville Co. presently incurs costs of about 12 million Australian dollars (A$) per year for research and development expenses in Australia. It sells the products that are designed each year, and all of the products sold each year are invoiced in U.S. dollars. Nashville anticipates revenue of about $20 million per year, and about half of the revenue will be from sales to customers in Australia. The Australian dollar is presently valued at $1 (1 U.S. dollar), but it fluctuates a lot over time. Nashville Co. is planning a new project that will expand its sales to other regions within the United States, and the sales will be invoiced in dollars. Nashville can finance this project with a 5-year loan by (1) borrowing only Australian dollars, or (2) borrowing only U.S. dollars, or (3) borrowing one-half of the funds from each of these sources. The 5-year interest rates on an Australian dollar loan and a U.S. dollar loan are the same. If Nashville wants to use the form of financing that will…ABC limited (An Australian company) imports die-cast parts from its Chinese subsidiary that areused in the production of children's toys. Per unit, part 126 costs the Chinese subsidiary AUD $200 and AUD $20 to ship to ABC limited. ABC limited uses part 126 to produce a toy airplane that it sell to local stores for AUD $600 per unit. The following tax rates apply: Chinese income tax: 25% Australian income tax: 30% Australian import duty: 10% of invoice price Required: a. Calculate the total amount of income taxs and import duties paid to the Australian and Chinese government if part 126 is sold to ABC limited at the price of AUD $300 per unit b. Calculate the total amount of income taxs and import duties paid to the Australian and Chinese government if part 126 is sold to ABC limited at the price of AUD $400 per unit c. Explain why the results got in part (a) and (b) differ
- ABC limited (An Australian company) imports die-cast parts from its Chinese subsidiary that areused in the production of children’s toys. Per unit, part 126 costs the Chinese subsidiary AUD$200 and AUD $20 to ship to ABC limited.ABC limited uses part 126 to produce a toy airplane that it sell to local stores for AUD $600 perunit. The following tax rates apply:Chinese income tax: 25%Australian income tax: 30%Australian import duty: 10% of invoice priceRequired:a. Calculate the total amount of income taxs and import duties paid to the Australian andChinese government if part 126 is sold to ABC limited at the price of AUD $300 per unitb. Calculate the total amount of income taxs and import duties paid to the Australian andChinese government if part 126 is sold to ABC limited at the price of AUD $400 per unitc. Explain why the results got in part (a) and (b) differKamber, Inc., owns a factory located close to, but not inside, a foreign trade zone. The plant imports volatile chemicals that are used in the manufacture of chemical reagents for laboratories. Each year, Kamber imports about $14,200,000 of chemicals subject to a 30% tariff when shipped into the United States. About 15% of the imported chemicals are lost through evaporation during the manufacturing process. In addition, Kamber has a carrying cost of 10% per year associated with the duty payment. On average, the chemicals are held in inventory for 9 months. Assume that Kamber is considering building a new plant inside a foreign trade zone to replace its chemical manufacturing plant. Required: 1. How much duty will be paid per year by the factory located inside the foreign trade zone?$fill in the blank 1 2. How much in duty and duty-related carrying costs will be saved by relocating inside the foreign trade zone?$fill in the blank 2Beacon, a division of Libra Corporation, is located in the United States. Its effective income tax rate is 30%. Another division of Libra, Falcon, is located in Canada, where the income tax rate is 40%. Falcon manufactures, among other things, an intermediate product for Beacon called XPS-2022. Falcon operates at capacity and makes 15,000 units of XPS-2022 for Beacon each period, at a variable cost of $28 per unit. Assume that there are no outside customers for XPS-2022. Because the XPS-2022 must be shipped from Canada to the United States, it costs Falcon an additional $4 per unit to ship the XPS-2022 to Beacon. There are no direct fixed costs for XPS-2022. Falcon also manufactures other products. A product similar to XPS-2022 that Beacon could use as a substitute is available in the United States for $38.50 per unit. Q. What is the minimum and maximum transfer price that would be acceptable to Beacon and Falcon for XPS-2022, and why?