Biocyte Pharmaceuticals is a large Australian pharmaceutical company that has a significant business presence in the United States (Biocyte (U.S.)). Assume that Biocyte (Australia) sells generic (non-branded) pharmaceutical intermediates[1] to Biocyte (U.S.). Biocyte (U.S.) sells them to other pharmaceutical companies with or without further processing. Biocyte (Australia) sells the pharmaceutical intermediates to other companies in the U.S. as well. However, the terms and conditions may vary somewhat from its transfers to Biocyte (U.S.). The following additional information is available:

Cost of the intermediates to Biocyte (Australia)	$22 million
Biocyte (U.S.) revenues from the sale of intermediates	$50 million
Average gross margin on sales for U.S. drug resellers	40%
Average gross margin on sales for Biocyte (Australia) on intermediates	20%

For the two independent situations below, determine which transfer price method is most applicable and compute for each: (1) the transfer price, (2) Biocyte (Australia)s gross margin, and (3) Biocyte (U.S.)s gross margin (Note: any further processing costs incurred by Biocyte (U.S.) are not given in this problem, and should not be considered):

Situation I:	Biocyte (U.S.) does not process the intermediates before reselling them.
Situation II:	Biocyte (U.S.) undertakes significant further processing of intermediates before reselling them.

[1] Pharmaceutical intermediates are chemical compounds which form the building blocks of the active pharmaceutical ingredient, and are used in the production of bulk drugs.