Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 22, Problem 22.23E
A.
To determine
Transfer Pricing:
This refers to a process of pricing in which one sub-unit of an organization charges a price to another sub-unit for supplying a product or service to the sub-unit of the same organization.
To determine: The after-tax operating income be maximized if it sold the 200,000 chainsaws in the U or in F division.
B.
To determine
Whether the transfer price calculated in requirement 2 in 22E result in the division managers of U taking the actions determined to be optimal in requirement 1.
C.
To determine
The minimum transfer price at which the U division manager will agree and does this price results the company in a whole paying more import duty and taxes than the answer to requirement 2 and by how much.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Suppose that division R can sell any quantity of Ranbax in a perfectly competitive market for $0.33 a pound. To maximize Letang’s income, how many pounds of Ranbax should division R transfer to divisions S and T, and how much should it sell in the external market?
A company in country X with currency XSD is analyzing a potential investment in country Y with currency YSD. The best estimate is that YSD will be devalued in the international markets at an average of 3%. If the MARR of this company in country X is 23% what is the MARR that the company should use in country Y?
A bank is considering two alternatives for handling its service calls in the next decade ( treat this as one period). The projected number of service calls is 10,000,000. If the bank sets up its own service call center in the U.S., the fixed cost is estimated to be $2,700,000, and the variable cost is calculated to be 32 cents per call. If the call service is outsourced to a foreign company, the fixed cost would be $240,000, and the unit charge would be 57 cents per call.
(a)What is the break-even number of service calls?
(b)Would the bank set up its own service call center or outsource call handlings? (Enter 1 for Produce or enter O for Outsource)
(C)What would be the dollar amount that the bank can save by choosing the better option? (Cost difference between the two options)
Chapter 22 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 22 - Prob. 22.1QCh. 22 - Describe three criteria you would use to evaluate...Ch. 22 - What is the relationship among motivation, goal...Ch. 22 - Name three benefits and two costs of...Ch. 22 - Organizations typically adopt a consistent...Ch. 22 - Transfer pricing is confined to profit centers. Do...Ch. 22 - What are the three methods for determining...Ch. 22 - What properties should transfer-pricing systems...Ch. 22 - All transfer-pricing methods give the same...Ch. 22 - Prob. 22.10Q
Ch. 22 - Prob. 22.11QCh. 22 - Prob. 22.12QCh. 22 - Prob. 22.13QCh. 22 - Under the general guideline for transfer pricing,...Ch. 22 - How should managers consider income tax issues...Ch. 22 - Evaluating management control systems, balanced...Ch. 22 - Cost centers, profit centers, decentralization,...Ch. 22 - Prob. 22.18ECh. 22 - Prob. 22.19ECh. 22 - Multinational transfer pricing, effect of...Ch. 22 - Prob. 22.21ECh. 22 - Multinational transfer pricing, global tax...Ch. 22 - Prob. 22.23ECh. 22 - Prob. 22.24ECh. 22 - Transfer-pricing problem (continuation of 22-24)....Ch. 22 - Prob. 22.26PCh. 22 - Prob. 22.27PCh. 22 - Effect of alternative transfer-pricing methods on...Ch. 22 - Goal-congruence problems with cost-plus...Ch. 22 - Multinational transfer pricing, global tax...Ch. 22 - Transfer pricing, external market, goal...Ch. 22 - Prob. 22.32PCh. 22 - Transfer pricing, goal congruence, ethics. Cocoa...Ch. 22 - Prob. 22.34PCh. 22 - Transfer pricing, perfect and imperfect markets....Ch. 22 - Prob. 22.36PCh. 22 - Prob. 22.37P
Knowledge Booster
Similar questions
- Please answer last 3 subparts labeled d, e, f. D. What would be the effect on the ROI of the Tufting Division using your transfer price? Explain. E. Assume that the Backing Division is now selling 2,000,000 square yards per year to retail outlets. What transfer price would you recommend? What will be the effect on corporate profits? F. If the Backing Division is at capacity and decides to sell to the Tufting Division for $3.00 per square yard, what will be the effect on the company's profits?arrow_forwardA firm's value added refers to the dollar value of O A. a firm's sales revenue minus the firm's protits O B. a firm's sales revenue minus the firm's purchases of intermediate products from other firms. O C. a firm's total sales revenue O D. the intermediate products a firm buys from other producers. Suppose U.S. drivers purchased $50 billion of ExxonMobil produced gasolinc duning a rocent year, with one-hali purchased d'rectly fem ExxontMobil owied gas stations iariri onie-half from independent (or third-party) gas statons. Suppose lurther that ExxonMobil purchased the oil (which it refined into gasolitie) from foreign producers for $20 hillion and thal ii recoives B percent of the ses revenuo that itidependent stations nenerate from selling ExxonMobil gasoline. In this case, the value added by ExxonMobil to U.S. GDP is S bilion ( nler your response as an integer Click to select your answer(s). 21:23 2203.2021arrow_forwardDavao has a potential foreign customer that has offered to buy 1,500 tons at P450 per ton. Assume that all of Davao’s costs would be at the same levels and rates as last year. What net income after taxes would Davao make if it took this order and rejected some business from regular customers so as not to exceed capacity? Without prejudice to your answers to previous questions, and assume that Davao plans to market its product in a new territory. Davao estimates that an advertising and promotion program costing P61,500 annually would need to be undertaken for the next two or three years. In addition, a P25 per ton sales commission over and above the current commission to the sales force in the new territory would be required. How many tons would have to be sold in the new territory to maintain Davao’s current after-tax income of P94,500? If the sales volume is estimated to be 2,100 tons in the next year, and if the prices and costs stay at the same levels and amounts next year, the…arrow_forward
- Pulsar Plc is considering of exporting its products to the Swedish market. It expects to earnan annual accounting profit of £200m from doing so. It has also the option to beginexporting to India, Brasil or South Africa, but it has the production capacity for only one ofthe four possible markets (including Sweden). The expected annual accounting profit forthe above three markets is £250m, £200m, and £150m respectively. On the basis of thisinformation, the economic profit of exporting to Sweden is equal to:a. -£50m.b. £0m.c. £50m.d. £200m.arrow_forwardFill in the Table representing these data. Assume that the tax rate is 0.4 of national income; the MPC out of the after-tax income is 0.8; investment is $2,000; government spending is $1,000; exports are $2,000 and imports are 0.05 of after-tax income. What is the equilibrium level of output for this economy? National Income After-tax Consumption I+G+X Income Minus Imports Aggregate Expendituresarrow_forwardAll parts are under one question, per your policy all parts can be answered. 3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Yeatman Co.: Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 Unit sales 3,000 3,250 3,300 3,400 Sales price $17.25 $17.33 $17.45 $18.24 Variable cost per unit $8.88 $8.92 $9.03 $9.06 Fixed operating costs $12,500 $13,000 $13,220 $13,250 This project will require an investment of $15,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project’s four-year life. Yeatman pays a constant tax rate of 25%, and it has a weighted average cost of…arrow_forward
- 1. Refer to Kingwood Corporation. What is the minimum price per unit that X Division could accept from Y Division for 5,000 units of the gear assembly and be no worse off than currently? 2. Refer to Kingwood Corporation. What will be the effect on overall corporate profits if the two divisions agree to an internal transfer of 5,000 units?arrow_forwardDivision J makes a product, R, which it sells externally into a perfectly competitive market for £57; this represents a 90% mark-up on standard variable cost. It also transfers product R to Division K. If total external demand for product R exceeds the capacity of Division J, what is the optimal transfer price between divisions for a unit of product R? A) £54.50 B) £55.50 C) £56.72 D) £57.00arrow_forwardA consumer product firm is considering making a major investment in China. The investment is expected to cost $5 billion, and the present value (PV) of the expected cash flows on the investment is only $3.5 billion. However, the firm believes that there are substantial expansion opportunities in China. Would that justify investing the $5 billion? Why or why not?arrow_forward
- 1.Davao has a potential foreign customer that has offered to buy 1,500 tons at P450 per ton. Assume that all of Davao’s costs would be at the same levels and rates as last year. What net income after taxes would Davao make if it took this order and rejected some business from regular customers so as not to exceed capacity? 2. If the sales volume is estimated to be 2,100 tons in the next year, and if the prices and costs stay at the same levels and amounts next year, the after-tax income that Davao can expect for next year is ? 3. The breakeven volume in tons of product for the year is ?arrow_forwardOne of the important components of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies. Consider this case: Jing Associates Inc. is a U.S. firm evaluating a project in Australia. You have the following information about the project: • The project requires an investment of AU$800,000 today and is expected to generate cash flows of AU$900,000 at the end of each of the next two years. • The current exchange rate of the U.S. dollar against the Australian dollar is $0.7877 per Australian dollar (AU$). • The one-year forward exchange rate is $0.8109 / AU$, and the two-year forward exchange rate is $0.8455 / AU$. • The firm's weighted average cost of capital (WACC) is 8.5%, and the project is of average risk. What is the dollar-denominated net present value (NPV) of this project? O $792,199 $861,086 $688,869 O $826,643 There are three major types of international credit markets. Read the following statement and then indicate which type of…arrow_forwardWhich division do you think had the better RI performance? Explain your answer. The required rate of return on investment (calculated in U.S. dollars) is 11%.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub