Business Finance
Brookline College Phoenix Wk 4 Effect of Full Cost and Variable Cost Transfer Pricing Methods on Cash Flows Discussion

Brookline College Phoenix

Question Description

I don’t understand this Accounting question and need help to study.

You will utilize the information in this week’s Resources and your course text to consider how transfer pricing decisions might apply to organizational decision making. There is also an Excel template provided in the same entry that you may find helpful in completing this Assignment.

The Assignment:

  • Part 1: Analyze the effect of both full-cost and variable-cost transfer pricing methods on cash flows using a spreadsheet program such as Excel.

AutoManf Controllers Inc. manufactures robotic controllers in Division A, a country with a 30% income tax rate, and transfers them to Division B, a country with a 40% income tax. An import duty of 15% of the transfer price is paid on all imported products. The import duty is not deductible in computing taxable income. The controller’s full cost is $1,500 and variable cost is $900; they are sold by Division B for $2,100. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price.

Unformatted Attachment Preview

Week 4 Application Full Cost Division A Taxes: Transfer Price Less Cost Taxable Income Taxes in Low Country (or refund) Division B Taxes: Sales Price Less Transfer Price Taxable Income Income Taxes Import Duty Taxes in High Country (or refund) Total Taxes Variable Cost 0 0 0 0 0 0 ...
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Final Answer

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AutoManf Controllers Inc.
Division A Income Tax
Division B Income Tax
Import Duty
Full Cost
Variable Cost
Sales Price

30%
40%
15%
$1,500
$900
$2,100

Week 4 Application
Full Cost

Variable Cost

Division A Taxes:
Transfer Price
Less Cost
Taxable Income
Taxes in Low Country (or refund)

$1,500
$1,500
0
0

$900
$1,500
-600
-180

Division B Taxes:
Sales Price
Less Transfer Price
Taxable Income
Income Taxes
Imp...

Duke University

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