Alpha Communications, Inc., which produces telecommunications equipment in the United States, has a very strong local market for its circuit board. The variable production cost is $130, and the company can sell its entire supply domestically for $170. The U.S. tax rate is 40 percent. Alternatively, Alpha can ship the circuit board to its division in Germany, to be used in a product that the German division will distribute throughout Europe. Information about the German product and the division's operating environment follows. Selling price of final product: $360 Shipping fees to import circuit board: $20 Labor, overhead, and additional material costs of final product: $115 Import duties levied on circuit board (to be paid by the German division): 10% of transfer price German tax rate: 60% Assume that U.S. and German tax authorities allow a transfer price for the circuit board set at either U.S. variable manufacturing cost or the U.S. market price. Alpha's management is in the process of exploring which transfer price is better for the firm as a whole. Required: 1. Compute overall company profitability per unit if all units are transferred and U.S. variable manufacturing cost is used as the transfer price 2-a. Compute overall company profitability per unit, assuming the use of the U.S. market price as the transfer price 2-b. Which of the two transfer prices is better for the firm? 3. Assume that the German division can obtain the circuit board in Germany for $155 a. If you were the head of the German division, would you rather do business with your U.S. division or buy the circuit board locally? b. Is it in the best interest of Alpha to sell its goods domestically and allow the German division to acquire the circuit board in Germany? Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req 3A Req 3B Compute overall company profitability per unit if all units are transferred and U.S. variable manufacturing cost is used as the transfer price. (Round your answer to 2 decimal places.) rofit eq Req 2A Alpha Communications, Inc., which produces telecommunications equipment in the United States, has a very strong local market for its circuit board. The variable production cost is $130, and the company can sell its entire supply domestically for $170. The U.S. tax rate is 40 percent. Alternatively, Alpha can ship the circuit board to its division in Germany, to be used in a product that the German division will distribute throughout Europe. Information about the German product and the division's operating environment follows. Selling price of final product: $360 Shipping fees to import circuit board: $20 Labor, overhead, and additional material costs of final product: $115 Import duties levied on circuit board (to be paid by the German division): 10% of transfer price German tax rate: 60% Assume that U.S. and German tax authorities allow a transfer price for the circuit board set at either U.S. variable manufacturing cost or the U.S. market price. Alpha's management is in the process of exploring which transfer price is better for the firm as a whole. Required: 1. Compute overall company profitability per unit if all units are transferred and U.S. variable manufacturing cost is used as the transfer price 2-a. Compute overall company profitability per unit, assuming the use of the U.S. market price as the transfer price 2-b. Which of the two transfer prices is better for the firm? 3. Assume that the German division can obtain the circuit board in Germany for $155 a. If you were the head of the German division, would you rather do business with your U.S. division or buy the circuit board locally? b. Is it in the best interest of Alpha to sell its goods domestically and allow the German division to acquire the circuit board in Germany? Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req 3A Req 3B Compute overall company profitability per unit if all units are transferred and U.S. variable manufacturing cost is used as the transfer price. (Round your answer to 2 decimal places.) rofit eq Req 2A
