SEMO Inc.has a division located in Spain and another in the U.S.The Spanish division produces a part needed for the product made by the U.S.division.There is substantial excess capacity in the Spanish division.The tax rate of the Spanish division is 35% and U.S.division tax rate is 30%.The part sells externally for $75 and the Spanish division's manufacturing costs are:$$\begin{array} { | l r | }
\hline \text { Direct material } & \$ 32 \
\hline \text { Direct labor } & 12 \
\hline \text { Variable overhead } & 6 \
\hline \text { Fixed overhead } & 19 \
\hline
\end{array}$$
Required:
1)What would be the lowest acceptable transfer price for the Spanish division?
2)What would be the highest acceptable transfer price for the U.S.division?
3)What would be the transfer price that would be the best for SEMO Inc.and why?

Question

SEMO Inc.has a division located in Spain and another in the U.S.The Spanish division produces a part needed for the product made by the U.S.division.There is substantial excess capacity in the Spanish division.The tax rate of the Spanish division is 35% and U.S.division tax rate is 30%.The part sells externally for $75 and the Spanish division's manufacturing costs are:$$\begin{array} { | l r | } 
\hline \text { Direct material } & \$ 32 \
\hline \text { Direct labor } & 12 \
\hline \text { Variable overhead } & 6 \
\hline \text { Fixed overhead } & 19 \
\hline
\end{array}$$ 
Required:
1)What would be the lowest acceptable transfer price for the Spanish division?
2)What would be the highest acceptable transfer price for the U.S.division?
3)What would be the transfer price that would be the best for SEMO Inc.and why?

Quizplus · Accepted Answer

The Answer of SEMO Inc.has a division located in Spain and another in the U.S.The Spanish division produces a part needed for the product made by the U.S.division.There is substantial excess capacity in the Spanish division.The tax rate of the Spanish division is 35% and U.S.division tax rate is 30%.The part sells externally for $75 and the Spanish division's manufacturing costs are:$$\begin{array} { | l r | } 
\hline \text { Direct material } & \$ 32 \
\hline \text { Direct labor } & 12 \
\hline \text { Variable overhead } & 6 \
\hline \text { Fixed overhead } & 19 \
\hline
\end{array}$$ 
Required:
1)What would be the lowest acceptable transfer price for the Spanish division?
2)What would be the highest acceptable transfer price for the U.S.division?
3)What would be the transfer price that would be the best for SEMO Inc.and why?

SEMO Inchas a Division Located in Spain and Another in the the U.S.The