Hello - I do not need the answer. I just need to know where to start. I'm not sure what

Sigchi4life
Category:
Accounting
Price: $5 USD

Question description

Hello - I do not need the answer.  I just need to know where to start.  I'm not sure what I am supposed to be looking for or solving. 

Phipps manufactures circuit boards 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 circuit boards' full cost is $1,000 and variable cost is $700; they are sold by Division B for $1,200. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price.

The Assignment:

  • Part 1: Analyze the effect of both full-cost and variable-cost transfer pricing methods on Phipps’ cash flows using a spreadsheet program such as Excel.
  • Part 2: Make your recommendation as to how the organization should proceed, being sure to justify your recommendation with examples form this week’s resources, and/or additional research. Complete this aspect of the Assignment by using a word processing program such as Word.

Tutor Answer

(Top Tutor) Daniel C.
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School: UCLA
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