TRANSFER PRICING
1. Until recently Strike Ltd focused exclusively on soles for football boots and sold these to boot
manufacturers. Taking advantage of its strong reputation the company has now added an independent
boot div in addition to the sole division.
The sole div continues to make soles for football boots and sells these to outside manufacturers. The
boot division purchased its soles from outside suppliers so as not to disturb the sole division
The management now wants sole division to provide at least some of the soles needed by boot division.
Following is the available information
Boot
Sole
SP/Boot
100
SP/sole
28
VC/Boot not including
soles
45
VC/sole
21
Cost of sole purchased
from outside
25
Contribution margin
30
Contribution margin
7
2. Crystal Ltd has a molten glass division and the following is the summary of that divisions
activities last year
Output & sales to
outside customers
Selling Price
Variable Cost
Fixed Cost
40000 tonnes
Rs 120/ton
Rs 65/ton
Rs 720000 pa
The co. also has a glass bottles div which needs 10000 tons of molten glass in order to manufacture its
bottles. At present however the glass bottles division buys all of its molten glass from an external
supplier at a price of Rs 105 per tonne. What is the possibility of these 2 divisions doing some business
with each other under the following scenarios
a. No spare capacity in the molten glass division
b. Spare capacity in the molten glass division
3. A company is organized into 2 divisions namely A&B and produces 3 products K,L,and M. Data
per unit are
K
L
M
Market Price in Rs
120
115
100
Variable cost in Rs
84
60
70
Direct labour in hrs
4
5
3
Maximum sales
potential in units
1600
1000
600
Div B has a demand for 600 units of product L for its use. Div A cannot supply the requirement, Div B can
buy a similar product from the market at 112 per unit
What should be the transfer price of 600 units of L for div B if the total direct labour hours available in
Div A are restricted to 15000
4. Vodafone tax evasion case
FDI in India was very high between years 2007 to 2009. The FDI flowing in was around 5000 million
dollars in 2009. seeing this many telecom companies were interested in india
Dutch company Vodafone Intl holdings plan to enter india in 2007
They had 2 options
a) Set up their own company in india – infrastructure employees etc
b) or buy already set up company to save on effort
So Vodafone decided to buy Hutchison Essar Ltd for Rs 55000 crores. You must have heard of Essar Oil,
Essar steel. Essar oil is rebranded now as Nyara ltd
When you sell property in India you have to pay Central gains tax
