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Mossfort, Inc., has a division in Canada that makes long-lasting exterior wood stain. Mossfort has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting wood stain from the Canadian division, since this type of stain is not currently available. The Exterior Stain Division incurs manufacturing costs of $13.30 for one gallon of stain. If the Retail Division purchases the stain from the Canadian division, the shipping costs will be $1.40 per gallon, but sales commissions of $0.70 per gallon will be avoided with an internal transfer. The Retail Division plans to sell the stain for $35.10 per gallon. Normally, the Retail Division earns a gross margin of 30 percent above cost of goods sold. Required: 1. Which Section 482 method should be used to calculate the allowable transfer price? Resale price method ✓ 2. Calculate the appropriate transfer price per gallon. $ per unit

Mossfort, Inc., has a division in Canada that makes long-lasting exterior wood stain. Mossfort has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting wood stain from the Canadian division, since this type of stain is not currently available. The Exterior Stain Division incurs manufacturing costs of $13.30 for one gallon of stain. If the Retail Division purchases the stain from the Canadian division, the shipping costs will be $1.40 per gallon, but sales commissions of $0.70 per gallon will be avoided with an internal transfer. The Retail Division plans to sell the stain for $35.10 per gallon. Normally, the Retail Division earns a gross margin of 30 percent above cost of goods sold. Required: 1. Which Section 482 method should be used to calculate the allowable transfer price? Resale price method ✓ 2. Calculate the appropriate transfer price per gallon. $ per unit

FINANCIAL ACCOUNTING
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 and Section 482 Mossfort, Inc., has a division in Canada that makes long-lasting exterior wood stain. Mossfort has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting wood stain from the Canadian division, since this type of stain is not currently available. The Exterior Stain Division incurs manufacturing costs of $13.30 for one gallon of stain. If the Retail Division purchases the stain from the Canadian division, the shipping costs will be $1.40 per gallon, but sales commissions of $0.70 per gallon will be avoided with an internal transfer. The Retail Division plans to sell the stain for $35.10 per gallon. Normally, the Retail Division earns a gross margin of 30 percent above cost of goods sold. Required: 1. Which Section 482 method should be used to calculate the allowable transfer price? Resale price method 2. Calculate the appropriate transfer price per gallon. $ per unit
Transcribed Image Text:Transfer Pricing and Section 482 Mossfort, Inc., has a division in Canada that makes long-lasting exterior wood stain. Mossfort has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting wood stain from the Canadian division, since this type of stain is not currently available. The Exterior Stain Division incurs manufacturing costs of $13.30 for one gallon of stain. If the Retail Division purchases the stain from the Canadian division, the shipping costs will be $1.40 per gallon, but sales commissions of $0.70 per gallon will be avoided with an internal transfer. The Retail Division plans to sell the stain for $35.10 per gallon. Normally, the Retail Division earns a gross margin of 30 percent above cost of goods sold. Required: 1. Which Section 482 method should be used to calculate the allowable transfer price? Resale price method 2. Calculate the appropriate transfer price per gallon. $ per unit
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