week 4 assignment 63

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The Scenario

GenTrac Global Inc. manufactures robotic controllers in Division A, a country with a 30% income tax rate, and transfers them to Division B, a country with a 40% income tax. An import duty of 15% of the transfer price is paid on all imported products. The import duty is not deductible in computing taxable income. The controller’s full cost is $1,800 and variable cost is $1,000; they are sold by Division B for $2,100. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price.

The Assignment:

For this Assignment, review the information in the scenario above. You will utilize the information in this week’s Resources and your course text to consider how transfer pricing decisions might apply to organizational decision making. There is also an Excel template provided in the same entry that you may find helpful in completing this Assignment.

  • Part 1: Analyze the effect of both full-cost and variable-cost transfer pricing methods on Phipps’ cash flows using a spreadsheet program such as Excel.
  • Part 2: Make your recommendation as to how the organization should proceed, being sure to justify your recommendation with examples form this week’s resources, and/or additional research. Complete this aspect of the Assignment by using a word processing program such as Word.

References

Zimmerman, J. (2016). Accounting for Decision Making and Control. New York, NY: McGraw-Hill Higher Education.

Portz, K., & Lere, J. C. (2010). Cost center practices in Germany and the United States: Impact of country differences on managerial accounting practices. American Journal of Business, 25(1), 45–52.

Schuster, P., & Clarke, P. (2010). Transfer prices: Functions, types, and behavioral implications. Management Accounting Quarterly, 11(2), 22–32.

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