Question
Transfer pricing company is a two division firm, consisting of a manufacturing division and a distribution division. Manufacturing division produces a single product, called product
Transfer pricing company is a two division firm, consisting of a manufacturing division and a distribution division. Manufacturing division produces a single product, called product X. The cost of producing product X consists of a variable cost of $50 per unit, and a fixed cost of $100 per unit. This fixed cost per unit is calculated assuming that Manufacturing runs at its capacity of 10,000 units. Assume there is an external customer that contracts with Manufacturing to buy up to 4,000 units of product X for $200 per unit. More precisely, assume that the external customer will pay $200 per unit for any number of units that Manufacturing ships to it, up to 4,000 units, but it will not buy more than 4,000 units.
Q1. The distribution division wants 8,000 units of product X from the manufacturing division. Calculate the transfer price for the internal transfer of 8,000 units of product X according to the general transfer pricing rule.
Q2. The distribution division wants 10,000 units of product X from the manufacturing division. Calculate the transfer price for the internal transfer of 10,000 units of product X according to the general transfer pricing rule.
Q3. Compute the payback period of a project that requires an initial investment of $500,000 in year zero and pays back $100,000, $300,000, $400,000, and $200,000 in years 1 through 4.
Q4. Compute the discounted payback period of a project that requires an initial investment of $500,000 in year zero and pays back $100,000, $300,000, $400,000, and $200,000 in years 1 through 4. Assume that 10% is the appropriate discount rate of the project
Please show me how to get the answers.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started