Transfer Pricing Decisions

TRANSFER PRICING DECISIONS 3

TransferPricing Decisions

Division A

Income tax

30%

Full cost of circuit board

$1,000

Variable cost

$700

Division B

Income tax

40%

Selling price

$1,200

Effect of full cost transfer pricing method

Assume the units transferred from A to B are 1,000 units

Then,

Revenue $1200 * 1000

$1,200,000

less transfer price

$1,000

Less import duty 15% (1000000)

150,000

Gross earning

$1,049,000

Income tax

$419,600

Net earning

$629,400

Therefore, through considering full cost pricing method, Phibbs is going to have a net earnings of $629,400

Effect of Variable Cost Transfer Pricing Method

Incase 1000 units of circuit board are transferred, then

Revenue

$1,200,000

less cost (1000*700)

$700,000

less import duty 15%*700000

$105,000

Gross Earning

$395,000

Income tax

$158,000

Net earnings

$237,000

Through using variable cost pricing method, Phibbs will have a net earnings of $ 237,000

References

Feinschreiber,R. (2004).&nbspTransferpricing methods: An applications guide.Hoboken, N.J: J. Wiley.

Related Posts

© All Right Reserved