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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Decision on transfer pricing

 Based on T_Kong Industries’ data in Exercise 24-20, assume that a transfer price of $160 has been established and that 50,000 units of materials are transferred, with no reduction in the Components Division’s current sales.

a.

To determine

Transfer price: The price charged for the goods and services transferred among the divisions is referred to as transfer price.

Approaches for setting transfer prices:

  • Market price approach
  • Negotiated price approach
  • Cost price approach

To determine: The increase in Industries TK income from operations as a result of transfer pricing

Explanation

Determine the increase in Industries TK’s income from operations as a result of transfer pricing.

Increase in Industries TK’s income from operations} = {(Market price–

b.

To determine
The increase in I Division’s income from operations as a result of transfer pricing

c.

To determine
The increase in C Division’s income from operations as a result of transfer pricing

d.

To determine
The range of transfer price, if negotiated price approach is used

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