Exercise 10.14 Transfer Pricing and Section 482

Sugarland, Inc., has a division in Indonesia that makes dyestuff in a variety of colors used to dye denim for jeans, and another division in the United States that manufactures denim clothing. The Dyestuff Division incurs manufacturing costs of $2.68 for one pound of powdered dye.

The Clothing Division currently buys its dye powder from an outside supplier for $3.80 per pound. If the Clothing Division purchases the powder from the Indonesian division, the shipping costs will be $0.34 per pound, but sales commissions of $0.05 per pound will be avoided with an internal transfer.

Required:

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

Comparable uncontrolled price method

Cost-plus price method

Resale price method

Calculate the appropriate transfer price per pound. Round your answer to the nearest cent. $____ per unit

2. Assume that the Clothing Division cannot buy this type of powder externally since it has an unusual formula that results in a color particular to Sugarlands jeans. Which Section 482 method should be used to calculate the allowable transfer price? PICK ONE

-Comparable uncontrolled price method

-Cost-plus price method

-Resale price method Item

Calculate the appropriate transfer price per pound. Round your answer to the nearest cent. $_______ per unit