Figure 20-9
Miggs Manufacturing has one plant located in Belgium and another plant located in the United States. The Belgium plant manufactures a component used in a finished product manufactured at the U.S. plant. Currently, the Belgium plant is operating at 70 per cent capacity. In Belgium, the income tax rate is 42 per cent; in the United States, the corporate income tax rate is 35 per cent.
The market price of the component is £200 and the Belgium plant's costs to manufacture the component are as follows: $\begin{array}{lr}
\text { Direct materials } & £ 20 \
\text { Direct labour } & 40 \
\text { Variable overhead } & 10 \
\text { Fixed overhead } & 30
\end{array}$
-Refer to Figure 20-9. What is the maximum transfer price that the U.S. division would be willing to pay?

Question

Quizplus · Accepted Answer

The maximum transfer price the U.S. division would be willing to pay is the market price of the component, which is £200. This is because the transfer price should not exceed the external market price, as the U.S. division could potentially purchase the component from the market at this price.

Figure 20-9 Miggs Manufacturing Has One Plant Located in Belgium

Figure 20-9
Miggs Manufacturing Has One Plant Located in Belgium