As a Milk tea manufacturer company, BobbaTea supplies boba to Gula Hula and BobbaTime. BobbaTea supplies 100 kgs to Gula Hula per month and also 500 kgs to BobbaTime per month. BobbaTea as one of the founders of Gula Hula and BobbaTime, felt responsible for the supply of boba for both brands. BobbaTea itself has a product cost of IDR 10,000 per kilo. BobbaTea sells to other customers than Gula Hula and BobbaTime for IDR 20,000 per kilogram. Gula Hula gets prices from other suppliers at IDR 17,000 per kilogram, while BobbaTime gets 2,000 cheaper prices per kilogram than the price obtained by Gula Hula because it buys more. In general, BobbaTea’s production capacity is 2 (two) tons per month. During the 3rd quarter, BobbaTea’s felt that his sales had risen drastically, so BobbaTea was faced with the following conditions: Demand from customers is full up to 2 (two) tons in July because it is the dry season. With BobbaTea, they felt that they couldn't help but they need to supply Gula Hula and BobbaTime. In August, BobbaTea increased its capacity to 3 tons to meet the needs of consumers and learned from last month that it must continue to supply Gula Hula and BobbaTime. In September, BobbaTea also produced 3 tons to be able to supply all customers as well as Gula Hula and BobbaTime needs. Describe the BobbaTea transaction flow with the two companies and explain with each of the transfer pricing calculations for Gula Hula and BobaTime including explaining using upper limit and lower limit charts.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Transfer Pricing

As a Milk tea manufacturer company, BobbaTea supplies boba to Gula Hula and BobbaTime. BobbaTea supplies 100 kgs to Gula Hula per month and also 500 kgs to BobbaTime per month. BobbaTea as one of the founders of Gula Hula and BobbaTime, felt responsible for the supply of boba for both brands. BobbaTea itself has a product cost of IDR 10,000 per kilo. BobbaTea sells to other customers than Gula Hula and BobbaTime for IDR 20,000 per kilogram. Gula Hula gets prices from other suppliers at IDR 17,000 per kilogram, while BobbaTime gets 2,000 cheaper prices per kilogram than the price obtained by Gula Hula because it buys more. In general, BobbaTea’s production capacity is 2 (two) tons per month. During the 3rd quarter, BobbaTea’s felt that his sales had risen drastically, so BobbaTea was faced with the following conditions:

Demand from customers is full up to 2 (two) tons in July because it is the dry season. With BobbaTea, they felt that they couldn't help but they need to supply Gula Hula and BobbaTime.
In August, BobbaTea increased its capacity to 3 tons to meet the needs of consumers and learned from last month that it must continue to supply Gula Hula and BobbaTime.
In September, BobbaTea also produced 3 tons to be able to supply all customers as well as Gula Hula and BobbaTime needs.

Describe the BobbaTea transaction flow with the two companies and explain with each of the transfer pricing calculations for Gula Hula and BobaTime including explaining using upper limit and lower limit charts.

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