30 - 22-31 (Cont'd.) 2. 300% of Full Cost Philippine Mining...

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Unformatted text preview: 22-31 (Cont'd.) 2. 300% of Full Cost Philippine Mining Division Division revenues, $900, $400 1,000 Division variable costs, $100 1,000 Division fixed costs, $200 1,000 Division total costs Division operating income U.S. Processing Division Division revenues, $4,000 500 Transferred-in costs, $900, $400 1,000 Division variable cost, $200 500 Division fixed costs, $600 500 Division total costs Division operating income Market Price $ 900,000 100,000 200,000 300,000 $ 600,000 $ 400,000 100,000 200,000 300,000 $ 100,000 $2,000,000 900,000 100,000 300,000 1,300,000 $ 700,000 $2,000,000 400,000 100,000 300,000 800,000 $1,200,000 3. 300% of Full Cost Philippine Mining Division Division operating income Income tax at 20% Division after-tax operating income Market Price $600,000 120,000 $480,000 $ 100,000 20,000 $ 80,000 U.S. Processing Division Division operating income Income tax at 35% Division after-tax operating income $700,000 245,000 $455,000 $1,200,000 420,000 $ 780,000 4. 300% of Full Cost Philippine Mining Division: After-tax operating income U.S. Processing Division: After-tax operating income Industrial Diamonds: After-tax operating income Market Price $480,000 455,000 $935,000 $ 80,000 780,000 $860,000 Industrial Diamonds will maximize companywide net income by using the 300% of full cost transfer-pricing method. This method sources more of the total income in the country with the lower income tax rate. ...
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30 - 22-31 (Cont'd.) 2. 300% of Full Cost Philippine Mining...

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