Answered: transfer price

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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Question

Conner Manufacturing has one plant located in Italy and another plant located in the United States. The Italian plant manufactures a component used in a finished product manufactured at the U.S. plant. Currently, the Italian plant is operating at 75 per cent capacity. In Italy, the income tax rate is 32 per cent; in the United States, the corporate income tax rate is 35 per cent.

The market price of the component is £240 and the Italian plant's costs to manufacture the component are as follows:

Direct materials £60
Direct labour 40
Variable overhead 20
Fixed overhead 30

Which transfer price would be in the best interest of the overall company?

Group of answer choices

£240

£100

£150

£120

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