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Carmen Seville and Don Turco jointly own Bright Green Temp Services (BGTS). Carmen owns 70 percent and Don owns 30 percent. The company provides temporary
Carmen Seville and Don Turco jointly own Bright Green Temp Services (BGTS). Carmen owns 70 percent and Don owns 30 percent. The company provides temporary clerical services at a rate of S60 per hour. During the past year, its clients used 34,000 hours of temporary services. Big City Developers purchased 4,800 hours of temporary services from BGTS last year. Carmen has a 30 percent interest in Big City Developers, and Don has a 55 percent interest in it. At the end of the year, Don suggested that BGTS give Big City Developers a 10 percent reduction in the hourly rate charged next year in recognition of its large purchases and desirability as a client. Assuming that Big City Developers purchases the same number of hours and that all other costs and activities remain the same in the coming year, what effect would the price reduction have on BGTS's operating profits that accrue to Carmen and to Don for the coming year? (Decrease in profits should be indicated by minus sign wherever appropriate.) Ms. Seville's Mr. Turco's Shares (70% Shares (30% and 30%) 1 and 55%) Total Decrease in profits at BGTS Increase in profits at Big City Developers Net change in profits References eBook& Resources Worksheet Learning Objective: 15-02 Explain the general transfer pricing rules and understand the underlying basis for them
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