[SPLIT] Phipps manufactures circuit boards in Division A

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Tyrone.29

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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.
 
Tyrone.29 said:
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.
Click to expand...
Please reply showing your efforts so far, so we can see where you're getting stuck. Thank you! ;)
 
bizzeljlsr said:
Haven't got started yet, need help starting.
Click to expand...

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.

Need help in starting. thanks
 
bizzeljlsr said:
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.

Need help in starting. thanks
Click to expand...

Since you have no idea - and we don't know what you know - let's make sure you know the definitions of important terms:

Please define full-cost and variable-cost transfer pricing methods.

Please define 30% income tax rate.

Please define taxable income.

Please define "deductible in computing taxable income".

After these definitions are confirmed we can start to ascertain mathematical process to link those together.

What are your thoughts?

Please share your work with us ...even if you know it is wrong

If you are stuck at the beginning tell us and we'll start with the definitions.

You need to read the rules of this forum. Please read the post titled "Read before Posting" at the following URL:

http://www.freemathhelp.com/forum/th...Before-Posting
 
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