Given the conditions cited above, what transfer price would be used according to the transfer price formula?A. P28B. P30C. P42D. P45 Lou and Vega are the only two divisions in LV Company.Lou makes and sells motors which can either be sold to outside customers or sold to Vega.The following data are availableLouVegaSelling Price per motor to outside customersVariable Costs per motor when sold to outside customersCapacity in motorsmotors sold to outside customersP45P3012,0006,000Number of motors needed/monthPrice per motor paid to an outside supplierIf Lou sells the motors to Vega, Lou can avoid P2 per motor in sales commisions4,000P42

Lets understand the basics. Transfer price is a price through which transfer of units between inter…

Answered: Given the conditions cited above, what…

Given the conditions cited above, what transfer price would be used according to the transfer price formula? A. P28 B. P30 C. P42 D. P45

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: How is the revaluation surplus handled under the revaluation model?

A: The question is related to Revaluation model under IAS16 Property, Plant and Equipment. Under this…

Q: LC8Q3.Which of the following is a variable cost? Loan interest rate Salary Rent Salesperson s…

A: A variable cost is a type of cost which changes in accordance to the change in the level of output.

Q: When using present worth to evaluate the attractiveness of a single investment alternative, what…

A: To calculate the attractiveness of investment there is need to calculate the present worth is…

Q: In a transfer pricing decision, which of the following factors should be considered? Both A and B…

A: Transfer pricing refers to the pricing strategy and decisions made within transnational companies…

Q: What is the d market book ratio?

A: Ratio analysis: The analysis of a company using the financial ratios and comparing its trends and…

Q: Fair value is determined as: Select one: a. The current entry price. b. The current exit price. c. A…

A: Fair value is a broad measure of an asset's worth and is not the same as market value, which refers…

Q: What is the current market view on USD/JPY? (Will it appreciate and which depreciate? and why?)

A: USD/JPY will be reflecting the exchange rate of Japanese currency with respect to 1 American dollar.…

Q: What is meant by actuarially fair prices? What conditions will make Arrow-Debreu prices actuarially…

A: Fairtrade Minimum Price is defined as the minimum price, which used to get paid through the…

Q: What is the difference between spot rates andforward rates? When is the forward rate at a premium to…

A: Spot rates are the rates that prevail in the cash market or the rates that are applicable today.…

Q: According to the fair value principle, assets and liabilities should be reported Select answer from…

A: The fair value principle is an accounting concept that aims to provide a more accurate…

Q: Describe the method used to establish the Economic equivalence at period 0?

A: Economic Equivalence sets the cash flows in such a way that its value is adjusted for the time…

Q: what is fixed-price contract, and what are the benfit of chosing it

A: A contract where the price is fixed as negotiated by the parties is known as a Fixed Price Contract.…

Q: am. 102.

A: APR stands for a) Annual Percentage Rate.

Q: a) Let VK(t, T) be the value of a forward contract on an asset with delivery price K, VK(t, T) =…

A: Forward contracts are agreements where one party agrees to buy a commodity at a particular price on…

Q: A2) I need professional answer: Explain the difference between spot rates, short rates, and forward…

A: Spot, short, and forward rates are referred to as the future and current exchange rates used in…

Q: technique is better and why?

A: Capital budgeting is a method of choosing the best investment project out of the available…

Q: Explain with examples these methods of transfer pricing Comparable Uncontrolled Price Method •Cost…

A: Comparable Uncontrolled Price (CUP) Method: The Comparable Uncontrolled Price (CUP) Method is a…

Q: Spot market Futures market Over the counter market Forwards markets

A: Commodity market are very important for determining the prices of commodities.

Q: Explain Total Return Swap?

A: Swaps are agreement between different businesses and financial institutions which is customized as…

Q: Describe the difference between the forward price and the value of a forward contract?

A: First, let us define a forward contract. Forward contracts are agreements between two parties to buy…

Q: Define each of the following terms: f. Spot rate; forward exchange rate; discount on forward rate;…

A: The spot rate shall be the value of a good, security, or monetary system for immediate payment.…

Q: Arbitrage Pricing Theory a. Explain the Concepts "Law of one Price" and "Opportunity Cost"

A: Law of One Price: The One Price Rule is an economic principle that proposes that equal products…

Q: system, the three endogenous variables in the IS/LM/BP model are output, interest rates and money…

A: THE Mundell Fleming model is known as IS /LM/BOP MODEL. The equation more relevant for small open…

Q: What is the relation between the present value of an investment and time and interest rate?

A: The concept of present value of an investment and time and interest rate is an important concept of…

Q: How can we establish economic equivalence by selecting the base period?

A: Answer: There is economic equivalence between cash flows which have the same economic influence and…

Q: Am.11.

A: Here is the Edgeworth Box diagram illustrating the equilibrium:The blue dot represents the initial…

Q: Is the “forward price” the same thing as the “value of the forward contract” Explain.

A: Derivative is defined as the contract, which are between the two or more parties, who has the value…

Q: What is the current market view on GBP/USD? (Will it appreciate and which depreciate? and why?)

A: The exchange rate are dependent on the the market factors and other factors which are point of…

Q: The forward contract price, established when the contract is initiated at t = 0, is denoted as…

A: Forward Price: It refers to the contract price of an underlying financial asset or commodity that is…

Q: For the two period representative agent consumption-based capital asset pricing model (C-CAPM), an…

A: C-CAPM stands for the Consumption-based Capital Asset Pricing Model. It is an economic model that…

Q: Under a flexible exchange rate system, the three endogenous variables in the IS/LM/BP model are…

A: THE MUNDELL FLEMING MODEL , AS THE ECONOMY cannot maintain a fix exchange rate three capital women…

Q: What is cross-exchange rate? Give an example.

A: The exchange rate expresses the value of a currency in terms of another currency. It determines the…

Q: Consider a two-factor Arbitrage Pricing Theory (APT) model, r₁ = a₁ + b₁₁ifi + b2,if2 + €₁, with the…

A: The APT theory refers to the relation between the return provided by the asset and the factors that…

Q: B. In deciding a transfer pricing method, advise management on: i. negotiated transfer pricing ii.…

A: Transfer pricing is the price which is to be calculated if there is any transaction between related…

Q: In the asset price model, verify that E[S(t)] = Soeht E[S(t)²] = S²e(²µ+o²) t Var[S(t)] = S²e²ut…

A: An asset price model is a theoretical framework used in finance to analyze and understand the…

Q: Define Arbitrage Pricing Theory (APT)

A: Arbitrage is the method of making profit from the temporary change in the cost of shares by buying…

Question

Given the conditions cited above, what transfer price would be used according to the transfer price formula?

A. P28
B. P30
C. P42
D. P45

Lou and Vega are the only two divisions in LV Company.
Lou makes and sells motors which can either be sold to outside customers or sold to Vega.
The following data are available
Lou
Vega
Selling Price per motor to outside customers
Variable Costs per motor when sold to outside customers
Capacity in motors
motors sold to outside customers
P45
P30
12,000
6,000
Number of motors needed/month
Price per motor paid to an outside supplier
If Lou sells the motors to Vega, Lou can avoid P2 per motor in sales commisions
4,000
P42

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

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

The forward contract value today is denoted as a.Vo(0,T) b.Fo(0,T) c.So(1 + r)^T d.Fo(0,T)/(1 + r)^(T – t)
Suppose that we can describe the world using two states and that two assets are available, asset X an asset Y. We assume the asset’s future prices have the following distribution State Future Price Asset X Future Price Asset Y 1 $25 $50 2 $20 $40 The values of the unit claims implied by these assets are such that: A. C1 and C2 cannot be determined B. C1=1 and C2=1 C. C1=1, but we cannot determine C2 D. C1=5/4 and C2=5/4
Which of the following(s) is (are) proposed as a reason to contribute to a non-participation puzzle? I. Downside risk II. Exchange rate risk II. Participation costs IV. Political activism O , II, and II O Il and II O Il and IV O , II, and IV O I, II, II, and IV
Explaine (1) comoponent of GDP
Discuss Mixed-Dollar Analysis?
Q37
6
Give examples of the Equal Payment Series?
What is the current market view on EUR/USD? (Will it appreciate or depreciate? and why?)
takaful premiums are?
5.
What are the three methods for determining transfer prices?