Sugarland, Inc., has a division in Indonesia that makes dyestuff in a variety of colors used to dye denim for jeans, and another division in the United States that manufactures denim clothing. The Dyestuff Division incurs manufacturing costs of $2.68 for one pound of powdered dye. The Clothing Division currently buys its dye powder from an outside supplier for $3.80 per pound. If the Clothing Division purchases the powder from the Indonesian division, the shipping costs will be $0.34 per pound, but sales commissions of $0.05 per pound will be avoided with an internal transfer. Required: 1. Which Section 482 method should be used to calculate the allowable transfer price? Calculate the appropriate transfer price per pound. 2. Assume that the Clothing Division cannot buy this type of powder externally since it has an unusual formula that results in a color particular to Sugarland’s jeans. Which Section 482 method should be used to calculate the allowable transfer price? Calculate the appropriate transfer price per pound.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
BuyFind

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

Solutions

Chapter 10, Problem 14E
Textbook Problem

Sugarland, Inc., has a division in Indonesia that makes dyestuff in a variety of colors used to dye denim for jeans, and another division in the United States that manufactures denim clothing. The Dyestuff Division incurs manufacturing costs of $2.68 for one pound of powdered dye.

The Clothing Division currently buys its dye powder from an outside supplier for $3.80 per pound. If the Clothing Division purchases the powder from the Indonesian division, the shipping costs will be $0.34 per pound, but sales commissions of $0.05 per pound will be avoided with an internal transfer.

Required:

  1. 1. Which Section 482 method should be used to calculate the allowable transfer price? Calculate the appropriate transfer price per pound.
  2. 2. Assume that the Clothing Division cannot buy this type of powder externally since it has an unusual formula that results in a color particular to Sugarland’s jeans. Which Section 482 method should be used to calculate the allowable transfer price? Calculate the appropriate transfer price per pound.

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Chapter 10 Solutions

Cornerstones of Cost Management (Cornerstones Series)
Ch. 10 - What is the transfer pricing problem?Ch. 10 - If the minimum transfer price of the selling...Ch. 10 - If an outside, perfectly competitive market exists...Ch. 10 - Identify three cost-based transfer prices. What...Ch. 10 - What is the purpose of Internal Revenue Code...Ch. 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 - Carreker, Inc., has a number of divisions,...Ch. 10 - Refer to Cornerstone Exercise 10.4. Required: 1....Ch. 10 - Clanahan, Inc., has a number of divisions around...Ch. 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 - Mouton Perrier, Inc., has a number of divisions...Ch. 10 - Jocassee Furniture Manufacturing, Inc., has a...Ch. 10 - Sugarland, Inc., has a division in Indonesia that...Ch. 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 - Fermat, Inc., has acquired two new companies, one...Ch. 10 - The key difference between residual income and EVA...Ch. 10 - If sales and average operating assets for Year 2...Ch. 10 - Anders Company provided the following information:...Ch. 10 - Refer to 10.22. If the imputed interest rate is...Ch. 10 - A company had WACC (weighted average cost of...Ch. 10 - Fillmore Industries is a vertically integrated...Ch. 10 - Raddington Industries produces tool and die...Ch. 10 - Lawanna Davis graduated from State U with a major...Ch. 10 - Ardmore, Inc., manufactures heating and air...Ch. 10 - Oriole, Inc., owns a number of food service...Ch. 10 - Corning Company has a decentralized organization...Ch. 10 - Greg Peterson has recently been appointed vice...Ch. 10 - Renslen, Inc., a truck manufacturing conglomerate,...Ch. 10 - Jump Start Company (JSC), a subsidiary of Mason...Ch. 10 - Carnover, Inc., manufactures a broad line of...Ch. 10 - Grate Care Company specializes in producing...

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