Exercise 15-31 (Algo) International Transfer Prices: Ethical Issues (LO 15-4) Whitehill Chemicals has two operating divisions. Its Formulation Division in the United States mixes, processes, and tests basic chemicals, and then ships them to Ireland, where the company's Commercial Division uses the chemicals to produce and sell various products. Operating expenses amount to $26.1 million in the U.S. and $78.1 million in Ireland exclusive of the costs of any goods transferred from the U.S. Revenues in Ireland are $196 million. If the chemicals were purchased from one of the company's Irish mixing divisions, the costs would be $39.1 million. However, if it had been purchased from an independent U.S. supplier, the cost would be $52.1 million. The marginal income tax rate is 20 percent in the U.S. and 12 percent in Ireland. Required: What is the company's total tax liability to both jurisdictions for each of the two alternative transfer pricing scenarios ($39.1 million and $52.1 million)? Note: Enter your answers in dollars and not in millions of dollars. Transfer price 39.1 million 52.1 million Total tax liability Exercise 15-34 (Algo) Evaluate Transfer Pricing System (LO 15-2) Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow: Capacity (units) Sales price Variable costsb Fixed costs Production 52,000 $ 280 $136 Packaging 26,000 $ 820 $ 328 $ 30,000,000 $ 18,000,000 For Production, this is the price to third parties. For Packaging, this does not include the transfer price paid to Production. Required: a. Current output in Production is 26,000 units. Packaging requests an additional 8,200 units to produce a special order. What transfer price would you recommend? b. Suppose Production is operating at full capacity. What transfer price would you recommend? c. Suppose Production is operating at 47,900 units. What transfer price would you recommend? a. Optimal transfer price b. Transfer price c. Transfer price per unit per unit per unit Exercise 15-36 (Algo) Evaluate Transfer Pricing System: Dual Rates (LO 15-2, 3) Anstell Corporation operates a Manufacturing Division and a Marketing Division. Both divisions are evaluated as profit centers. Marketing buys products from Manufacturing and packages them for sale. Manufacturing sells many components to third parties in addition to Marketing. Selected data from the two operations follow: Capacity (units) Sales price Variable costs Fixed costs Manufacturing 250,000 Marketing 125,000 $ 296 $ 926 $ 128 $ 352 $ 104,000 $ 724,000 *For Manufacturing, this is the price to third parties. For Marketing, this does not include the transfer price paid to Manufacturing. Required: a. Current output in Manufacturing is 166,000 units. Marketing requests an additional 41,000 units to produce a special order. What transfer price would you recommend? b. Suppose Manufacturing is operating at full capacity. What transfer price would you recommend? a. Transfer price b. Transfer price per unit per unit