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Fjord Inc. has several plants located around the world. The plant in Norway manufacturers a component that is used in a product manufactured by one of the U.S. plants. The Norway plant has excess capacity. The current tax rate in Norway is 40%, while the U.S. corporate tax rate is 30%.
-What is the minimum transfer price the Norway plant would accept?
A) $ 150.00
B) $ 59.00
C) $ 94.00
D) $102.00

Question

Quizplus · Accepted Answer

The minimum transfer price should cover the variable cost of production. Since the Norway plant has excess capacity, it does not need to cover fixed costs. Therefore, the minimum transfer price is the variable cost, which is $59.00.

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