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Northfield Manufacturing has two operating divisions in a semiautonomous organizational structure. Americas Division, based in the United States, produces a specialized memory chip that is
Northfield Manufacturing has two operating divisions in a semiautonomous organizational structure. Americas Division, based in the United States, produces a specialized memory chip that is an input to Asia Division, based in Japan. Americas Division uses idle capacity to produce the component, which has a domestic market price of $ Its variable costs are $ per unit. Northfield's US tax rate is percent of income.
In addition to the transfer price for each component received from Americas, Asia Division pays an $ per unit shipping fee. The chip becomes a part of its assembled product, which costs an additional $ to produce and sells for an equivalent of $ Asia could purchase the component from an Asian supplier for $ per unit. Northfields tax rate in Japan is percent of income. Assume that Japanese tax laws permit transferring at either variable cost or market price.
Required:
a What are the respective profits after tax for both the Americas Division and Asia Division of Northfield Manufacturing if the transfer price is $
a What are the respective profits after tax for both the Americas Division and Asia Division of Northfield Manufacturing if the transfer price is $
a What transfer price is economically optimal for Northfield Manufacturing?
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