Tiger Company manufactures flat screen HD TVs in the United States at a production cost of $600 per unit and sells them to uncontrolled distributors in the United States and a wholly owned sales subsidiary in Canada. Tiger’s U.S. distributors sell the TVs to retailers at a price of $1200 and its Canadian subsidiary sells the TVs at a price of $1300 Other distributors of TVs in Canada normally earn a gross profit equal to 30 percent of selling price. Tiger’s main competitor in the United States sells similar TVs at an average 50 percent markup on cost. Tiger’s Canadian sales subsidiary incurs operating costs, other than cost of goods sold, that average $250 per TV sold. The average operating profit margin earned by Canadian distributors of similar TVs is 10 percent. Questions: 1. Which of the following would be an acceptable transfer price under the resale price method? 2. Which of the following would be an acceptable transfer price under the cost-plus method? 3. Which of the following would be an acceptable transfer price under the comparable profits method?
Tiger Company manufactures flat screen HD TVs in the United States at a production cost of $600 per unit and sells them to uncontrolled distributors in the United States and a wholly owned sales subsidiary in Canada.
Tiger’s U.S. distributors sell the TVs to retailers at a price of $1200 and its Canadian subsidiary sells the TVs at a price of $1300
Other distributors of TVs in Canada normally earn a gross profit equal to 30 percent of selling price.
Tiger’s main competitor in the United States sells similar TVs at an average 50 percent markup on cost.
Tiger’s Canadian sales subsidiary incurs operating costs, other than cost of goods sold, that average $250 per TV sold.
The average operating profit margin earned by Canadian distributors of similar TVs is 10 percent.
Questions:
1. Which of the following would be an acceptable transfer price under the resale price method?
2. Which of the following would be an acceptable transfer price under the cost-plus method?
3. Which of the following would be an acceptable transfer price under the comparable profits method?
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