A firm has affiliates in both Japan, whose corporate income tax rate is equal to 40 percent, and Ireland, whose corporate tax rate is equal to 15 percent. The major activity of the Irish affiliate is to produce a special component, with $12 of costs, that it sells to the Japanese affiliate, initially at $18 per unit. The Japanese affiliate uses $20 of labor to assemble the final good which is sold to the final consumer for $50.

A firm has affiliates in both Japan, whose corporate income tax rate is equal to 40 percent, and Ireland, whose corporate tax rate is equal to 15 percent. The major activity of the Irish affiliate is to produce a special component, with $12 of costs, that it sells to the Japanese affiliate, initially at $18 per unit. The Japanese affiliate uses $20 of labor to assemble the final good which is sold to the final consumer for $50.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter13: Emerging Topics In Managerial Accounting

Section: Chapter Questions

Problem 48E

See similar textbooks

Similar questions

Beacon, 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?
Beacon, 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 transfer price would minimize income taxes for Libra Corporation as a whole? Would Beacon and Falcon want to be evaluated on operating income using this transfer…
Assume the U.S. corporate income tax rate is 40 percentand the Mexican corporate income tax rate is 30 percent.Jacques International Apparel Company has subsidiaries inboth the U.S. and Mexico. Jacques is trying to decide whattransfer price to use for its famous French frock, whichis being transferred from the U.S. subsidiary to theMexican subsidiary. It could ship the frock at the marketprice of $75 or at cost plus 20 percent. The cost of the frockis $40. Which transfer price would minimize Jacques’s taxburden?a. $75.b. $48.c. $90.d. $75 $40 $35.
A company produces jackets for €20 each in Portugal, which has a corporate tax rate of 21%. It then transfers its products to its Irish subsidiary for resale to the Irish public at a sales price of €30 per jacket. The corporate tax rate in Ireland is 12.5%. Calculate the total after-tax profit in the two countries if the company uses a transfer price of €23 and it sells 10,000 jackets. ANSWERS: €84,950 €15,050 €66,500 €8,495 €8,750
Country Jeans Co. has an annual plant capacity of 65,600 units, and current production is 46,300 units. Monthly fixed costs are $41,400, and variable costs are $25 per unit. The present selling price is $34 per unit. On November 12 of the current year, the company received an offer from Miller Company for 16,100 units of the product at $26 each. Miller Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Country Jeans Co. Question Content Area a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Miller order. If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisReject Order (Alt. 1) or Accept Order (Alt. 2)November 12 RejectOrder(Alternative 1) AcceptOrder(Alternative 2)…
WISsub annually resells to industrial manufacturing companies approximately 30,000 industrial ovens purchased from FORCo, its foreign parent, that are neither branded nor warranted. FORCo also sells 5,000 industrial ovens to an independent third party in Canada for $100,000 each. Unlike the industrial ovens sold to WISsub, the industrial ovens sold in Canada are warranted and bear the valuable FORCo label. Suppose that the comparable profits methodology is the best method. Further assume that your search for comparable companies preliminarily includes those on the list below with all return on sales figures being a proper average of the last three taxable years. Which of the companies are functionally comparable to WISsub? (a)
Corrientes Company produces a single product in its Buenos Aires plant that currently sells for 6.60 p per unit. Fixed costs are expected to amount to 56,000 p for the year, and all variable manufacturing and administrative costs are expected to be incurred at a rate of 2.00 p per unit. Corrientes has two salespeople who are paid strictly on a commission basis. Their commission is 11 percent of the sales revenue they generate. (Ignore income taxes.) (p denotes the peso, Argentina’s national currency. Many countries use the peso as their national currency. On the day this exercise was written, Argentina’s peso was worth $0.010 U.S. dollar.) Required: 1. Suppose management alters its current plans by spending an additional amount of 3,300 p on advertising and increases the selling price to 7.60 p per unit. Calculate the profit on 61,000 units.
Corrientes Company produces a single product in its Buenos Aires plant that currently sells for 5.00 p per unit. Fixed costs are expected to amount to 60,000 p for the year, and all variable manufacturing and administrative costs are expected to be incurred at a rate of 3.00 p per unit. Corrientes has two salespeople who are paid strictly on a commission basis. Their commission is 10 percent of the sales revenue they generate. (Ignore income taxes.) (p denotes the peso, Argentina’s national currency. Many countries use the peso as their national currency. On the day this exercise was written, Argentina’s peso was worth .104 U.S. dollar.) Required:1. Suppose management alters its current plans by spending an additional amount of 5,000 p on advertising and increases the selling price to 6.00 p per unit. Calculate the profit on 60,000 units.2. The Sorde Company has just approached Corrientes to make a special one-time purchase of 10,000 units. These units would not be sold by the sales…
Nashville Co. presently incurs costs of about 12 million Australian dollars (A$) 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…
Homestead Jeans Co. has an annual plant capacity of 67,000 units, and current production is 45,700 units. Monthly fixed costs are $54,400, and variable costs are $31 per unit. The present selling price is $40 per unit. On November 12 of the current year, the company received an offer from Dawkins Company for 19,600 units of the product at $34 each. Dawkins Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Homestead Jeans Co. Required: A. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Dawkins order. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is…
Down Home Jeans Co. has an annual plant capacity of 65,300 units, and current production is 45,000 units. Monthly fixed costs are $39,300, and variable costs are $25 per unit. The present selling price is $36 per unit. On November 12 of the current year, the company received an offer from Fields Company for 13,200 units of the product at $28 each. Fields Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Down Home Jeans Co. a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Fields order. If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) November 12 RejectOrder(Alternative 1) AcceptOrder(Alternative 2) DifferentialEffecton…
Tio, Inc. a U.S. parent owns two subsidiaries, Ecuador Inc. and Taiwan Inc. The corporate tax rate is 20% in Ecuador and 40% in Taiwan. It costs Ecuador Inc. $25 to assemble each widget. Ecuador Inc. sells all 1,000 widgets of its production to Taiwan Inc. at a negotiated price of $65 per unit. Taiwan Inc. sold all 1,000 widgets to independent customers for $90 per unit. What will the overall tax rate be if Tio instructed Ecuador to increase the price it charged Taiwan for each widget to $80 per unit? a. 25% b. 28% c. 21% d. 23.08%