Question

Clanahan, Inc., has a number of divisions around the world. Division US (in the United States) purchases a component from Division N (in the Netherlands). The component can be purchased externally for $25.30 each. The freight and insurance on the item amount to $2.70; however, commissions of $2.60 need not be paid.

Required:

Round your answers to the nearest cent.

1. Calculate the transfer price using the comparable uncontrolled price method.
$ ____ per unit

2. Suppose that there is no outside market for the component that Division N transfers to Division US. Further assume that Division US sells the component for $28.60 and normally receives a 30 percent markup on cost of goods sold. Calculate the transfer price using the resale price method.
$ ____ per unit

3. Now assume that there is no external market for the component transferred from Division N to Division US, and that the component is used in the manufacture of another product (i.e., it is not resold). Calculate the transfer price using the cost-plus method. Further assume that Division N’s manufacturing cost for the component is $18.40.
$ ____ per unit

4. What if commissions avoided were $2.80 per unit?

What would be the comparable uncontrolled price?
$ ____ per unit

What affect would this have on the resale price? (INCREASE/DECREASE/UNAFFECTED)

What affect would this have on the cost-plus price? (INCREASE/DECREASE/UNAFFECTED)

Answer 1

O Transfer price comparable uncontrolled price method Particulars Amouni 25-3 market price C) Prieghi & insuranc 2.7 02 Commission (2.6) ✓ Transfer Price $ 25-4 2 Resale price method Let trang fer price be 지 Resale price = Transfer price +(markup x Transfer price 28.60 x + 0.300 T= 28-60 1.30 22 S Transfer price $22

cost -plus method manufactuong cost 18540 CH) frieght & insurance 2.7 Transfer price $ 21,1 Particolars Amy market 25-3 Price f fri 2.7 6 Commission (2-80) transfer price 25.2 There will be no impact on TP determined under Regale Poice Method and COST plus price method