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DATA INPUT
German 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 10% (of transfer price)
German Tax Rate 60%
Variable Cost of Production 390$
US Sales Price 510$
US Tax Rate 40%
SOLUTION
1.
If the transfer price is set equal to the U.S. variable manufacturing cost, Alpha Comm will make 98.40$ per circuit board
US Operation:
Sales revenue (transfer price) 390.00$
Less:
Transfer Price 390$
Shipping fees 60$
The US Market price is therefore
more attractive as a transfer price than the US variable manufacturing cost
US Operation:
Sales revenue 510.00$
Less:
Transfer Price 510$
Shipping fees 60$
