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Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen
Edition 2ISBN: 978-1111824402Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen
Edition 2ISBN: 978-1111824402 Exercise 22
Transfer Pricing in the MNC
Carnover, Inc., manufactures a broad line of industrial and consumer products. One of its plants is located in Madrid, Spain, and another in Singapore. The Madrid plant is operating at 85 percent capacity. Its main product, electric motors, has experienced softness in the market, which has led to predictions of further softening of the market and predictions of a decline in production to 65 percent capacity. If that happens, workers will have to be laid off and one wing of the factory closed. The Singapore plant manufactures heavy-duty industrial mixers that use the motors manufactured by the Madrid plant as an integral component. Demand for the mixers is strong. Price and cost information for the mixers are as follows:
Fixed overhead is based on an annual budgeted amount of $3,500,000 and budgeted production of 35,000 mixers. The direct materials cost includes the cost of the motor at $200 (market price).
The Madrid plant capacity is 20,000 motors per year. Cost data are as follows:
Fixed overhead is based on budgeted fixed overhead of $2,000,000.
Required:
1. What is the maximum transfer price the Singapore plant would accept?
2. What is the minimum transfer price the Madrid plant would accept?
3. Consider the following environmental factors:
How might these environmental factors impact the transfer-pricing decision?
Carnover, Inc., manufactures a broad line of industrial and consumer products. One of its plants is located in Madrid, Spain, and another in Singapore. The Madrid plant is operating at 85 percent capacity. Its main product, electric motors, has experienced softness in the market, which has led to predictions of further softening of the market and predictions of a decline in production to 65 percent capacity. If that happens, workers will have to be laid off and one wing of the factory closed. The Singapore plant manufactures heavy-duty industrial mixers that use the motors manufactured by the Madrid plant as an integral component. Demand for the mixers is strong. Price and cost information for the mixers are as follows:
Fixed overhead is based on an annual budgeted amount of $3,500,000 and budgeted production of 35,000 mixers. The direct materials cost includes the cost of the motor at $200 (market price).
The Madrid plant capacity is 20,000 motors per year. Cost data are as follows:
Fixed overhead is based on budgeted fixed overhead of $2,000,000.
Required:
1. What is the maximum transfer price the Singapore plant would accept?
2. What is the minimum transfer price the Madrid plant would accept?
3. Consider the following environmental factors:
How might these environmental factors impact the transfer-pricing decision?
Explanation
Verified
Verified
1.$200 is the maximum transfer price tha...
Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen
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