Transfer Pricing and Section 482

Mossfort, Inc., has a division in Canada that makes long-lasting exterior wood stain. Mossfort has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting wood stain from the Canadian division, since this type of stain is not currently available. The Exterior Stain Division incurs manufacturing costs of $13.70 for one gallon of stain.

If the Retail Division purchases the stain from the Canadian division, the shipping costs will be $1.40 per gallon, but sales commissions of $0.70 per gallon will be avoided with an internal transfer. The Retail Division plans to sell the stain for $35.00 per gallon. Normally, the Retail Division earns a gross margin of 40 percent above cost of goods sold.

Required: 1. Calculate the appropriate transfer price per gallon. $ per unit