Transfer Pricing Decisions

Need help with my Accounting question – I’m studying for my class.

***ATTACHED IS AN EXCEL SPREADSHEET FILLED OUT, PLEASE LOOK OVER AND CORRECT ANY NUMBERS, USE ATTACHED PDF ARTICLE AS A SOURCE.

GenTrac Global Inc. manufactures robotic controllers in Division A, a country with a 30% income tax rate, and transfers them to Division B, a country with a 40% income tax. An import duty of 15% of the transfer price is paid on all imported products. The import duty is not deductible in computing taxable income. The controller’s full cost is $1,800 and variable cost is $1,000; they are sold by Division B for $2,100. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price.

As a manager, you may be tasked with making recommendations as to how your organization should structure its transfer pricing. This is especially true in cases when both variable or full cost transfer pricing is acceptable, and the choice is not obvious.

For this Assignment, review the information in the scenario posted in the entry titled Week 4 Assignment located in the Doc Sharing link. You will utilize the information in this week’s Resources and your course text to consider how transfer pricing decisions might apply to organizational decision making. There is also an Excel template provided in the same entry that you may find helpful in completing this Assignment.

The Assignment:

  • Part 1: Analyze the effect of both full-cost and variable-cost transfer pricing methods on cash flows using a spreadsheet program such as Excel.
  • Part 2: Make your recommendation as to how the organization should proceed, being sure to justify your recommendation with examples form this week’s Resources, and/or additional research. Complete this aspect of the Assignment by using a word processing program such as Word.

By Day 7

Submit your Assignment (both your Excel and Word files).

Note: Submit your Excel spreadsheet to the Week 4 Assignment Part 1 submission link. Submit your Word document to the Week 4 Assignment Part 2 submission link.

General Guidance on Assignment Length:

Your Assignment, due by Day 7, will typically be 2–3 paragraphs in length as a general expectation/estimate for each bullet point. Refer to the rubric for the Week 4 Assignment for grading elements and criteria. Your Instructor will use the rubric to assess your work.

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