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QUESTION

Phipps manufactures circuit boards in Division A,

Phipps manufactures circuit boards 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 circuit boards' full cost is $1,000 and variable cost is $700; they are sold by Division B for $1,200. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price.

The 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.

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******* take *** ***** ************ ******** ******* at **** **** ** $ ********* ** ******** ***** units * **************** * Transfer ***************** : ******* Duty(100000*15%)15000Less: ****** Tax ************************** **** ******** ******** ******* at ******** CostSales ** ******** ***** ***** * ************************* * ******** ************************* * ******* ************************* ****** *** (120000-70000)*40%20000Profit19500Less : ***** cost at ******** ****************** **** :-10500Recommendations1it is better ** ******** ** full cost ******* *** **** all **** ** ***** **** ******** to transferpricing at variable *************** ******** * *** ***** tax **** *** ****** duty ** ** % *** it **** not ***** ** ********* for tax *********** ** ** transfered at **** cost we **** ** *** **** ******* *** ******* is not *********** ***** cost ** ***** ***** cost then ** ** ****** ** ******** ** variable cost 4Division * ** ***** at ** * *** ******** * ** tax ** ** * ***** **** ** is *********** ** ******** at **** cost **** thoughdifference in ******* duty4500Difference ** ****** ********************* ********** ** net ****

Click here to download attached files: Solution-Phipps manufactures.xlsx
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****** manufactures circuit ****** ** Division *

Click here to download attached files: philips.xlsx
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