Review View Help Mailings A 21 ABCD Aalbode AaBb AaB 1 Normal 1 No Spac. Heading 1 Head Paragraph Styles Problem 4) Transfer Pricing Argene Division of California Instruments is located in the United States. Its effective income tax rate is 30%. Another division of California Instruments, Calcia is located in Canada, where the income tax rate is 42% Calcia manufactures, among other things, an intermediate product for Argons called IP2007 Calcia operates at capacity and makes 8.000 units of IP 2007 for Arone each period, at a variable cost of $60/unit. Assume that there are no outside customers for IP2007. Because the IP2007 must be shipped from Canada to the United States, it costs Calcia an additional $4/unit to ship the product to Argone. There are no direct fixed costs for IP 2007. Calcia also manufactures other products A product similar to IP2007 that Argone could use as a substitute it asailable in the United States for $75/unit. Argone sells the final product in the extemal at $120 unit Required) 1. What is the minimum and maximum transfer price that would be acceptable to (buying division) and Calcia (selling devision) for IP 2007, and why? con 2. What transfer price would maximize after tax income for California Instruments as a whole? (Show your computation). Would Calcia and Argone want to be evaluated on operating income (before t2x) using this transfer price! 3. Suppose California Instruments uses the transfer price from Requirement 2, and each division is evaluated on its own after-tax division operating income. Now, suppose Calcia has an opportunity to sell 8.000 units of IP 2007 to an outside customer for 568 each. Calcis will not incur shipping costs because the customer is nearby and offers to pay for shopping. Assume that if Calcia accepts the special order, disons will have to buy 3,000 units of the substitute product in the United States at $75 per unit Mailings Review View Help 1. 21 AaBb CD AaBbccde AaBbc Aabb 1 Normal T No Spac... Heading Headi Paragraph Styles Es tur > U ses the rear PTUJCE We exem TZUYULIL wired) 1. What is the minimum and maximum transfer price that would be acceptable to Acconc (buying division) and Calcia (selling division) for IP2007, and why? 2. What transfer price would maximize after tax income for California Instruments as a whole? (Show your computation). Would Calcia and Argone want to be evaluated on operating income (before tax) using this transfer price? 3. Suppose California Instruments uses the transfer price from Requirement and each division is evaluated on its own after-tax division operating income. Now, suppose Calcia has an opportunity to sell 8,000 units of IP2007 to an outside customer for S68 each Calcia will not incur shipping costs because the customer is nearby and offers to pay for shipping. Assume that if Calcia accepts the special order, Argone will have to buy 8.000 units of the substitute product in the United States at $75 per unit a) Will accepting the special order maximize after-tax income for California Instruments as a whole? b) Will Calsia want to accept this special order? Explain c) What transfer price should California Instruments set for 1P2007, so that each division acting in its own best interest takes actions that are in the best interests of Califomia Instruments as a whole! Review View Help Mailings A 21 ABCD Aalbode AaBb AaB 1 Normal 1 No Spac. Heading 1 Head Paragraph Styles Problem 4) Transfer Pricing Argene Division of California Instruments is located in the United States. Its effective income tax rate is 30%. Another division of California Instruments, Calcia is located in Canada, where the income tax rate is 42% Calcia manufactures, among other things, an intermediate product for Argons called IP2007 Calcia operates at capacity and makes 8.000 units of IP 2007 for Arone each period, at a variable cost of $60/unit. Assume that there are no outside customers for IP2007. Because the IP2007 must be shipped from Canada to the United States, it costs Calcia an additional $4/unit to ship the product to Argone. There are no direct fixed costs for IP 2007. Calcia also manufactures other products A product similar to IP2007 that Argone could use as a substitute it asailable in the United States for $75/unit. Argone sells the final product in the extemal at $120 unit Required) 1. What is the minimum and maximum transfer price that would be acceptable to (buying division) and Calcia (selling devision) for IP 2007, and why? con 2. What transfer price would maximize after tax income for California Instruments as a whole? (Show your computation). Would Calcia and Argone want to be evaluated on operating income (before t2x) using this transfer price! 3. Suppose California Instruments uses the transfer price from Requirement 2, and each division is evaluated on its own after-tax division operating income. Now, suppose Calcia has an opportunity to sell 8.000 units of IP 2007 to an outside customer for 568 each. Calcis will not incur shipping costs because the customer is nearby and offers to pay for shopping. Assume that if Calcia accepts the special order, disons will have to buy 3,000 units of the substitute product in the United States at $75 per unit Mailings Review View Help 1. 21 AaBb CD AaBbccde AaBbc Aabb 1 Normal T No Spac... Heading Headi Paragraph Styles Es tur > U ses the rear PTUJCE We exem TZUYULIL wired) 1. What is the minimum and maximum transfer price that would be acceptable to Acconc (buying division) and Calcia (selling division) for IP2007, and why? 2. What transfer price would maximize after tax income for California Instruments as a whole? (Show your computation). Would Calcia and Argone want to be evaluated on operating income (before tax) using this transfer price? 3. Suppose California Instruments uses the transfer price from Requirement and each division is evaluated on its own after-tax division operating income. Now, suppose Calcia has an opportunity to sell 8,000 units of IP2007 to an outside customer for S68 each Calcia will not incur shipping costs because the customer is nearby and offers to pay for shipping. Assume that if Calcia accepts the special order, Argone will have to buy 8.000 units of the substitute product in the United States at $75 per unit a) Will accepting the special order maximize after-tax income for California Instruments as a whole? b) Will Calsia want to accept this special order? Explain c) What transfer price should California Instruments set for 1P2007, so that each division acting in its own best interest takes actions that are in the best interests of Califomia Instruments as a whole