Louden, Inc., has a division in Canada that makes paint and another division in the United States that constructs subdivisions. The Paint Division incurs manufacturing costs of $4.60 for one gallon of paint.

The Construction Division currently buys its paint from an outside supplier for $5.20 per gallon. If the Construction Division purchases the paint from the Canadian division, the shipping costs will be $0.50 per gallon, but sales commissions of $0.52 per gallon will be avoided with an internal transfer.

Required:

1. Which Section 482 method should be used to calculate the allowable transfer price? Cal¬

culate the appropriate transfer price per gallon.

2. Assume that the Construction Division cannot buy this type of paint externally since it has an unusual long-lasting formula. Which Section 482 method should be used to calculate the allowable transfer price? Calculate the appropriate transfer price per gallon.