Transfer Pricing Decisions

Transfer Pricin" rel="nofollow">ing Decisions As a manager, you may be tasked with makin" rel="nofollow">ing recommendations as to how your organization should structure its transfer pricin" rel="nofollow">ing. This is especially true in" rel="nofollow">in cases when both variable or full cost transfer pricin" rel="nofollow">ing is acceptable, and the choice is not obvious. For this Assignment, take a moment to review your course text. Reflect on the scenario presented and consider how transfer pricin" rel="nofollow">ing decisions might apply to organizational decision makin" rel="nofollow">ing. Phipps manufactures circuit boards in" rel="nofollow">in Division A, a country with a 30% in" rel="nofollow">income tax rate, and transfers them to Division B, a country with a 40% in" rel="nofollow">income tax. An import duty of 15% of the transfer price is paid on all imported products. The import duty is not deductible in" rel="nofollow">in computin" rel="nofollow">ing taxable in" rel="nofollow">income. The circuit boards' full cost is $1,000 and variable cost is $700: they are sold by Division B for $1,200. The tax authorities in" rel="nofollow">in both countries allow firms to use either variable cost or full cost as the transfer price. • Part 1: Analyze the effect of both full-cost and variable-cost transfer pricin" rel="nofollow">ing methods on Phipps' cash flows usin" rel="nofollow">ing a spreadsheet program such as Excel. • Part 2: Make your recommendation as to how the organization should proceed, bein" rel="nofollow">ing sure to justify your recommendation with examples form this week's resources, and/or additional research. Complete this aspect of the Assignment by usin" rel="nofollow">ing a word processin" rel="nofollow">ing program such as Word.