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Delta Telecom Inc which produces telecommunications equipment in the United States has a very strong local market for its circuit board The variable production cost is $390 and the company can

Delta Telecom, Inc., which produces telecommunications equipment in the United States, has a very strong local market for its circuit board. The variable production cost is $390, and the company can sell its entire supply domestically for $510. The U.S. tax rate is 40 percent. Alternatively, Delta Telecom can ship the circuit board to its division in Germany, to be used in a product that the German division will distribute throughout Europe. Information about the German product and the division’s operating environment follows. Selling price of final product: $1,080 Shipping fees to import circuit board: $60 Labor, overhead, and additional material costs of final product: $345 Import duties levied on circuit board (to be paid by the German division): 10% of transfer price German tax rate: 60% Assume that U.S. and German tax authorities allow a transfer price for the circuit board set at either U.S. variable manufacturing cost or the U.S. market price. Delta Telecom’s management is in the process of exploring which transfer price is best for the firm as a whole. Required: 1. Compute overall company profitability per unit if all units are transferred and U.S. variable manufacturing cost is used as the transfer price. Show separate calculations for the U.S. operation and the German division. 2. Repeat requirement (1), assuming the use of the U.S. market price as the transfer price. Which of the two transfer prices is best for the firm? 3. Assume that the Ger

Jun 27 2020 View more View Less

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