The XYZ Multinational Corporation has manufacturing facilities in country A and an assembly plant in country B. The company ships manufactured units from its plant in A to its assembly plant in B. 1. In April 2013, the company ships 1,000 units with a production cost of 65 per unit to its plant in country B. Its operating expenses in A are 15,000 for the month. The income tax rate in A is 20 percent and in B 40 percent. The company plans to have a transfer price of 100 per unit. The final product can be sold in B for 140. B's operating expenses are 10,000 during the month. How much will the combined profits be of the two operation in April 2.13? 2. Could the company benefit by changing the transfer price to 120?
The XYZ Multinational Corporation has manufacturing facilities in country A and an assembly plant in country B. The company ships manufactured units from its plant in A to its assembly plant in B. 1. In April 2013, the company ships 1,000 units with a production cost of 65 per unit to its plant in country B. Its operating expenses in A are 15,000 for the month. The income tax rate in A is 20 percent and in B 40 percent. The company plans to have a transfer price of 100 per unit. The final product can be sold in B for 140. B's operating expenses are 10,000 during the month. How much will the combined profits be of the two operation in April 2.13? 2. Could the company benefit by changing the transfer price to 120?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Could the company benefit by changing the transfer price to 120?
Transcribed Image Text:The XYZ Multinational Corporation has manufacturing facilities in country A and an assembly plant in country B. The company ships manufactured units from its
plant in A to its assembly plant in B.
1. In April 2013 , the company ships 1,000 units with a production cost of 65 per unit to its plant in country B. Its operating expenses in A are 15,000 for the
month. The income tax rate in A is 20 percent and in B 40 percent. The company plans to have a transfer price of 100 per unit. The final product can be
sold in B for 140. B's operating expenses are 10,000 during the month. How much will the combined profits be of the two operation in April 2.13?
2. Could the company benefit by changing the transfer price to 120?
3. Now, suppose the income tax rate in A is 40 percent, while in B it is 20 percent. What will be combined profit be if all other numbers are the same as in a?
4. What would be the result in c if the company decreased its transfer price to 90?
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