a.
Compute the residual income for company T.
a.
Explanation of Solution
Residual income:
Residual income is the amount of profit that is left after adjusting the cost of capital of the business. It is calculated by subtracting the profit after tax from the total cost of capital invested in the business unit.
Compute the residual income:
Thus, the value of residual income is $9,600,000.
b.
Compute the Residual income of Company T.
b.
Explanation of Solution
Residual income:
Residual income is the amount of profit that is left after adjusting the cost of capital of the business. It is calculated by subtracting the profit after tax from the total cost of capital invested in the business unit.
Compute the Residual income:
Thus, the Residual income is $7,600,000.
c.
Compute the minimum transfer price according to the information given in the question.
c.
Explanation of Solution
Transfer price:
Transfer price is tool for tax savings. It refers to the price of those goods or services that are transferred in between subsidiaries, inter-department or commonly controlled companies.
Compute the transfer price:
Thus,
Thus, the value of transfer price is $90.00.
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Chapter 15 Solutions
FUNDAMENTALS OF COST ACCOUNTING BUNDLE
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