Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Chapter 10, Problem 14E
1.
To determine
Identify the Section 482 method that should be used to calculate the allowable transfer price and calculate the transfer price using the appropriate section 482 method.
2.
To determine
Identify the Section 482 method that should be used to calculate the allowable transfer price for the given situation and calculate the transfer price using the appropriate section 482 method.
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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 £60Direct labour 40Variable overhead 20Fixed overhead 30
Which transfer price would be in the best interest of the overall company?
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£240
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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?
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£280
£148
£136
£92
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…
Chapter 10 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 10 - Prob. 1DQCh. 10 - Explain why firms choose to decentralize.Ch. 10 - Explain how access to local information can...Ch. 10 - What are margin and turnover? Explain how these...Ch. 10 - What are the three benefits of ROI? Explain how...Ch. 10 - What are two disadvantages of ROI? Explain how...Ch. 10 - What is residual income? Explain how residual...Ch. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - What is a transfer price?
Ch. 10 - Prob. 11DQCh. 10 - If the minimum transfer price of the selling...Ch. 10 - If an outside, perfectly competitive market exists...Ch. 10 - Prob. 14DQCh. 10 - Prob. 15DQCh. 10 - Forchen, Inc., provided the following information...Ch. 10 - Refer to Cornerstone Exercise 10.1. Forchen, Inc.,...Ch. 10 - Ignacio, Inc., had after-tax operating income last...Ch. 10 - Prob. 4CECh. 10 - Prob. 5CECh. 10 - Prob. 6CECh. 10 - Jarriot, Inc., presented two years of data for its...Ch. 10 - Refer to Exercise 10.7 for data. At the end of...Ch. 10 - Refer to the data given in Exercise 10.8....Ch. 10 - Brewster Company manufactures elderberry wine....Ch. 10 - Xenold, Inc., manufactures and sells cooktops and...Ch. 10 - Prob. 12ECh. 10 - Jocassee Furniture Manufacturing, Inc., has a...Ch. 10 - Prob. 14ECh. 10 - Mossfort, Inc., has a division in Canada that...Ch. 10 - A multinational corporation has a number of...Ch. 10 - Consider the data for each of the following four...Ch. 10 - The following selected data pertain to the Argent...Ch. 10 - Prob. 19ECh. 10 - The key difference between residual income and EVA...Ch. 10 - If sales and average operating assets for Year 2...Ch. 10 - Prob. 22ECh. 10 - Refer to 10.22. If the imputed interest rate is...Ch. 10 - A company had WACC (weighted average cost of...Ch. 10 - Prob. 25PCh. 10 - Raddington Industries produces tool and die...Ch. 10 - Prob. 27PCh. 10 - Prob. 28PCh. 10 - Oriole, Inc., owns a number of food service...Ch. 10 - Prob. 30PCh. 10 - Prob. 31PCh. 10 - Renslen, Inc., a truck manufacturing conglomerate,...Ch. 10 - Jump Start Company (JSC), a subsidiary of Mason...Ch. 10 - Prob. 34PCh. 10 - Grate Care Company specializes in producing...
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