HORNGRENS COST ACCOUNTING W/ACCESS
16th Edition
ISBN: 9781323687604
Author: Datar
Publisher: PEARSON
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Question
Chapter 22, Problem 22.23E
A.
To determine
Transfer Pricing:
This refers to a process of pricing in which one sub-unit of an organization charges a price to another sub-unit for supplying a product or service to the sub-unit of the same organization.
To determine: The after-tax operating income be maximized if it sold the 200,000 chainsaws in the U or in F division.
B.
To determine
Whether the transfer price calculated in requirement 2 in 22E result in the division managers of U taking the actions determined to be optimal in requirement 1.
C.
To determine
The minimum transfer price at which the U division manager will agree and does this price results the company in a whole paying more import duty and taxes than the answer to requirement 2 and by how much.
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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 case
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.
Khan Ltd. has two divisions, Europe and Asia. Europe produces a ball bearing that Asia uses in its production. Europe's variable cost is $2 per unit and the fixed cost per unit is $1.50. Ball bearings sell on the open market for $6 each. If Europe has excess capacity, what would be the minimum transfer price if Asia currently is purchasing 100,000 units on the open market?
Chapter 22 Solutions
HORNGRENS COST ACCOUNTING W/ACCESS
Ch. 22 - Prob. 22.1QCh. 22 - Describe three criteria you would use to evaluate...Ch. 22 - What is the relationship among motivation, goal...Ch. 22 - Name three benefits and two costs of...Ch. 22 - Organizations typically adopt a consistent...Ch. 22 - Transfer pricing is confined to profit centers. Do...Ch. 22 - What are the three methods for determining...Ch. 22 - What properties should transfer-pricing systems...Ch. 22 - All transfer-pricing methods give the same...Ch. 22 - Prob. 22.10Q
Ch. 22 - Prob. 22.11QCh. 22 - Prob. 22.12QCh. 22 - Prob. 22.13QCh. 22 - Under the general guideline for transfer pricing,...Ch. 22 - How should managers consider income tax issues...Ch. 22 - Evaluating management control systems, balanced...Ch. 22 - Cost centers, profit centers, decentralization,...Ch. 22 - Prob. 22.18ECh. 22 - Prob. 22.19ECh. 22 - Multinational transfer pricing, effect of...Ch. 22 - Prob. 22.21ECh. 22 - Multinational transfer pricing, global tax...Ch. 22 - Prob. 22.23ECh. 22 - Prob. 22.24ECh. 22 - Transfer-pricing problem (continuation of 22-24)....Ch. 22 - Prob. 22.26PCh. 22 - Prob. 22.27PCh. 22 - Effect of alternative transfer-pricing methods on...Ch. 22 - Goal-congruence problems with cost-plus...Ch. 22 - Multinational transfer pricing, global tax...Ch. 22 - Transfer pricing, external market, goal...Ch. 22 - Prob. 22.32PCh. 22 - Transfer pricing, goal congruence, ethics. Cocoa...Ch. 22 - Prob. 22.34PCh. 22 - Transfer pricing, perfect and imperfect markets....Ch. 22 - Prob. 22.36PCh. 22 - Prob. 22.37P
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