Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow: Capacity (units) Sales price Variable costs Fixed costs Production 50,600 $ 252 $ 108 $ 30,000,000 Required: Packaging 25,300 $ 792 $300 $ 18,000,000 a For Production, this is the price to third parties. b For Packaging, this does not include the transfer price paid to Production. Suppose Production is located in Country A with a tax rate of 30 percent and Distribution in Country B with a tax rate of 10 percent. All other facts remain the same.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging
buys components from Production and assembles them for sale. Production sells many components to third parties in addition to
Packaging. Selected data from the two operations follow:
Capacity (units)
Sales price
Variable costsb
Fixed costs
a For Production, this is the price to third parties.
b
For Packaging, this does not include the transfer price paid to Production.
Suppose Production is located in Country A with a tax rate of 30 percent and Distribution in Country B with a tax rate of 10 percent. All
other facts remain the same.
a. Optimal transfer price
b. Transfer price
c Transfer price
Required:
a. Current output in Production is 25,300 units. Packaging requests an additional 5,960 units to produce a special order. What transfer
price would you recommend?
to search
b. Suppose Production is operating at full capacity. What transfer price would you recommend?
c. Suppose Production is operating at 47,620 units. What transfer price would you recommend?
R
F
%
5
T
G
Production
50,600
$ 252
$ 108
$ 30,000,000
B
O
+
6
H
per unit
per unit
per unit
Packaging
25,300
$ 792
$ 300
$ 18,000,000
n
&
7
N
U
< Prev
90 PS O W
101
8
M
4 of 6
K
(
9
)
O
L
Next >
888
P
Home
PrtSc
End
57°F Mostly clea
Insert
1
Transcribed Image Text:Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow: Capacity (units) Sales price Variable costsb Fixed costs a For Production, this is the price to third parties. b For Packaging, this does not include the transfer price paid to Production. Suppose Production is located in Country A with a tax rate of 30 percent and Distribution in Country B with a tax rate of 10 percent. All other facts remain the same. a. Optimal transfer price b. Transfer price c Transfer price Required: a. Current output in Production is 25,300 units. Packaging requests an additional 5,960 units to produce a special order. What transfer price would you recommend? to search b. Suppose Production is operating at full capacity. What transfer price would you recommend? c. Suppose Production is operating at 47,620 units. What transfer price would you recommend? R F % 5 T G Production 50,600 $ 252 $ 108 $ 30,000,000 B O + 6 H per unit per unit per unit Packaging 25,300 $ 792 $ 300 $ 18,000,000 n & 7 N U < Prev 90 PS O W 101 8 M 4 of 6 K ( 9 ) O L Next > 888 P Home PrtSc End 57°F Mostly clea Insert 1
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Domestic transfer pricing
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education