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- QS 22-17B Determining transfer prices with excess capacity LO C2 The Windshield division of Fast Car Co. makes windshields for use in Fast Car’s Assembly division. The Windshield division incurs variable costs of $200 per windshield and has capacity to make 500,000 windshields per year. The market price is $450 per windshield. The Windshield division incurs total fixed costs of $3,000,000 per year.If the Windshield division has excess capacity, what is the range of possible transfer prices that could be used on transfers between the Windshield and Assembly divisions?Question 9.4 East Meets West Ltd. is a Canadian company with a fully owned subsidiary in the UK. The UK subsidiary produces a component for off shore gas compressors that are sold in Canada. The components have a variable cost of 1,700 Euros and a full cost of 2,100 Euros. The 2,000 components required can be purchased in Canada for $3,500. Assume the minimum transfer price allowed by the Canadian tax authorities is the variable cost and the maximum is the market value. Also assume operating income in each country is equal to taxable income. One Euro is worth $1.45 Canadian. The marginal tax rate in Canada is 25% and in Ireland 12.5%. Required: What transfer price should be set for East Meets West Ltd. to minimize its total income taxes? Show your calculations. If East Meets West Ltd. desires to minimize its total income taxes, calculate the amount of tax liability in each country in Canadian dollars.Question 1 – Transfer pricing, break-even and variance calculation. KITCHEN PRO GmbH is a successful German-based multinational provider of high-end integrated kitchen systems. KITCHEN PRO purchases microwaves, ovens, refrigerators etc., and sells them to household consumers worldwide. KITCHEN PRO reports its financial statements in Euro (€). In early 2020 KITCHEN PRO is considering an acquisition of a Singapore-based company, ACE, because it wishes to fully control ACE’s wafflemaker and frying pan production and sales. KITCHEN PRO wants to include ACE’s products in its integrated kitchen offerings. In particular,KITCHEN PRO plans to sell ACE’s products exclusively as part of its kitchen systems, i.e. there shall be no external sales of ACE’s wafflemakers and frying pans following such an acquisition. The Questions : (a) KITCHEN PRO’s finance manager is aware that Singapore’s corporate income tax rate is lower than that of Germany. She must determine the transfer price of ACE’s…
- Answer 1234 with solution Alexi Division of Dezi Company makes and sells only one product. Annual data on Alexi division’s single products follows: Unit selling price ............................. P50 Unit variable cost ............................. 30 Total fixed costs .............................P200,000 Average operating assets ............... 750,000 Minimum required rate of return ........ 12% If Alexi sells 15,000 units per year, how much is the residual income? If Alexi sells 16,000 units per year, what is the return on investment? Suppose the manager of Alexi division desires a return on investment of 22%. In order to achieve this goal, how many units per year Alexi division must sell? Suppose the manager of Alexi division desires an annual residual income of P45,000. In order to achieve this, how many units Alexi division should sell?Transfer Pricing; Ethics Zen Manufacturing Inc. is a multinational firm with sales and manufacturing units in 15 countries. One of its manufacturing units, in country X, sells its product to a retailunit in country Y for $300,000. The unit in country X has manufacturing costs of $150,000 for theseproducts. The retail unit in country Y sells the product to final customers for $450,000. Zen is considering adjusting its transfer prices to reduce overall corporate tax liability.Required1. Assume that both country X and country Y have corporate income tax rates of 40% and that no specialtax treaties or benefits apply to Zen. What would be the effect on Zen’s total tax burden if the manufacturing unit raises its price from $300,000 to $360,000?2. What would be the effect on Zen’s total taxes if the manufacturing unit raised its price from $300,000 to$360,000 and the tax rates in countries X and Y are 20% and 40%, respectively?3. Comment on any ethical issues you observe in this case8. Lean as a Strategy The American textile industry has moved much of its operations offshore in the pursuit of lower labor costs. Textile imports have risen from 2% of all textile production in the early 1960s to over 70%. Offshore manufacturers make long runs of standard mass-market apparel items. These are then brought to the United States in container ships, requiring significant time between original order and delivery. As a result, retail customers must accurately forecast market demands for imported apparel items. Rather than competing with the offshore manufacturers on price in the textile industry, some U.S companies are: a.providing smaller quantities with much faster delivery. b.producing much larger batches with a strategy of flooding the market. c.making large order commitments to control the fashion market. d."providing smaller quantities with much faster delivery", "producing much larger batches with a strategy of flooding the market", and "making large order…
- Question No. 3 CVP – Applied: Revising Sales Incentives Data concerning Wislocki Corporation's single product appear below: Per Unit Percent of Sales Selling price $ 180 100 % Variable expenses 45 25 % Contribution margin $ 135 75 % Fixed expenses are $1,048,000 per month. The company is currently selling 9400 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $12 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $106,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 440 units. Required: What should be the overall effect on the company's monthly net operating income of this change?Question 10.4 Big Machines Corp. has two divisions. Division Y manufactures components that can be sold in the external market place or transferred to Division Z for further processing. The following data relate to Division Y's component product. Variable manufacturing costs/unit $925 Fixed costs/unit at capacity $275 Selling price/unit $1,800 The capacity of the plant is 2,500 units per year. Division Z has offered to purchase 350 units from Division Y at a price of $1,600/unit, which is the market price of the component. The manager of Division Y has refused this offer stating that it would only return a rate of 25.00%, when the divisional target return on sales is 28.00%. The Division Y manager also states that additional fixed costs of $195,000 would be required to produce the 350 units. The corporate required rate of return is 18% of assets and the existing asset base in Division Y is $2,500,000. Required: How many units must Division Y sell in order…32. Use this information for Stryker Industries to answer the question that follow.Stryker Industries received an offer from an exporter for 15,000 units of product at $17.50 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: Domestic unit sales price $20 Unit manufacturing costs: Variable 11 Fixed 1 What is the differential revenue from the acceptance of the offer? a.$52,500 b.$262,500 c.$250,000 d.$300,000
- Exercise 11-3 (Algo) Transfer Pricing Basics [LO11-3] Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling price per unit on the intermediate market $ 120 Variable costs per unit $ 102 Fixed costs per unit (based on capacity) $ 8 Capacity in units 25,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 5,000 speakers per year. It has received a quote of $117 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits. Required: 1. Assume the Audio Division sells only 20,000 speakers per year to outside customers. a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division? b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers…Exercise 11-3 (Algo) Transfer Pricing Basics [LO11-3] Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling price per unit on the intermediate market $ 120 Variable costs per unit $ 102 Fixed costs per unit (based on capacity) $ 8 Capacity in units 25,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 5,000 speakers per year. It has received a quote of $117 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits. Required: 1. Assume the Audio Division sells only 20,000 speakers per year to outside customers. a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division? b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers…34. Use this information for Stryker Industries to answer the question that follow. Stryker Industries received an offer from an exporter for 29,000 units of product at $19 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: Domestic unit sales price $21 Unit manufacturing costs: Variable 14 Fixed 5 What is the amount of income or loss from the acceptance of the offer? a.$609,000 loss b.$145,000 income c.$406,000 loss d.$551,000 income