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Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen
Edition 1ISBN: 978-0538736787Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen
Edition 1ISBN: 978-0538736787 Exercise 11
TRANSFER PRICING AND SECTION 482
Rayland, Inc., has a division in Canada that makes paint. Rayland has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting paint from the Canadian division, since this type of paint is not currently available. The Paint Division incurs manufacturing costs of $4.12 for one gallon of paint.
If the Retail Division purchases the paint from the Canadian division, the shipping costs will be $0.40 per gallon, but sales commissions of $0.60 per gallon will be avoided with an internal transfer. The Retail Division plans to sell the paint for $11.68 per gallon. Normally, the Retail Division earns a gross margin of 60 percent above cost of goods sold.
Required:
1. Which Section 482 method should be used to calculate the allowable transfer price?
2. Calculate the appropriate transfer price per gallon.
Rayland, Inc., has a division in Canada that makes paint. Rayland has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting paint from the Canadian division, since this type of paint is not currently available. The Paint Division incurs manufacturing costs of $4.12 for one gallon of paint.
If the Retail Division purchases the paint from the Canadian division, the shipping costs will be $0.40 per gallon, but sales commissions of $0.60 per gallon will be avoided with an internal transfer. The Retail Division plans to sell the paint for $11.68 per gallon. Normally, the Retail Division earns a gross margin of 60 percent above cost of goods sold.
Required:
1. Which Section 482 method should be used to calculate the allowable transfer price?
2. Calculate the appropriate transfer price per gallon.
Explanation
Verified
Verified
1.
The resale price method should be us...
Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen
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