Question
YZ Manufacturing has one plant located in Belgium and another plant located in the U.S. The Belgium plant manufactures a component used in a finished
YZ Manufacturing has one plant located in Belgium and another plant located in the U.S. The Belgium plant manufactures a component used in a finished product manufactured at the U.S. plant. Currently, the Belgium plant is operating at 70 percent capacity. In Belgium the income tax rate is 35 percent; in the U.S. the corporate income tax rate is 40 percent.
The market price of the component is $140 in Belgium and $120 in the US and the Belgium plants costs to manufacture the component are as follows:
Direct materials | $35 |
Direct labor | 25 |
Variable overhead | 6 |
Fixed overhead | 28 |
A. What is the minimum transfer price that the Belgium division would be willing to accept?
B. What is the maximum transfer price that the U.S. division would be willing to pay?
C. What would be the advantage (disadvantage) to the company of using the minimum transfer price as opposed to the maximum transfer price?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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