Question
A US company, Pratt Co. sells womens boots at $90 per pair in its domestic market. The company has two manufacturing divisions, Leather Sole, located
A US company, Pratt Co. sells womens boots at $90 per pair in its domestic market. The company has two manufacturing divisions, Leather Sole, located in Chile and Boot, located in Brazil. Chile division sells soles to Brazil division in order to make the boots. Brazil completes the final products and sells to the US. US packs the boots and sells to the customer. Transfer price is used for sales between companies. Variable costs per pair: Chile $10, Brazil $15, US $5; Fixed costs per pair: Chile $4, Brazil $6, US $3.
Assume 1) corporate tax rate in the US is 21%, 17% in Brazil, and 15% in Chile. 2) Chile runs at 98% capacity. 3) Market price for a pair of soles is $17 and for a pair of unpacked same brand boot is $50. 4) A unit is a pair. Ignore all other costs/expenses.
Question:
Show your calculation to determine the maximum unit transfer price from Chile to Brazil and from Brazil to US. and Pratt Cos net profit (or loss) per unit. Round to 2 decimal places.
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