31 - 22-31 (Cont'd.) 5. The Surveys of Company Practice Box...

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Unformatted text preview: 22-31 (Cont'd.) 5. The Surveys of Company Practice Box in the chapter lists the factors executives state to be important in decisions on transfer pricing: a. Performance evaluation b. Management motivation c. Pricing and product emphasis d. External market recognition Factors specifically related to multinational transfer pricing include: a. Overall income of the company b. Income or dividend repatriation restrictions c. Competitive position of subsidiaries in their respective markets 22-32 (3040 min.) Multinational transfer pricing and taxation. 1. Anita Corporation and its subsidiaries' operating income if it manufactures the machine and sells it in Brazil or in Switzerland follows: If Sold in Brazil Revenue Costs Manufacturing costs Transportation and modification costs Total costs Operating income $1,000,000 500,000 200,000 700,000 $ 300,000 If Sold in Switzerland $950,000 500,000 250,000 750,000 $200,000 Anita Corporation maximizes operating income by manufacturing the machine and selling it in Brazil. 2. Anita Corporation will not sell if the transfer price is less than $500,000its outlay costs of manufacturing the machine. The Brazilian subsidiary will not agree to a transfer price of more than $800,000. At a price of $800,000, the Brazilian subsidiary's incremental operating income from purchasing and selling the milling machine will be $0 ($1,000,000 $200,000 $800,000). The Swiss subsidiary will not agree to a transfer price of more than $700,000. At a price of $700,000, the Swiss subsidiary's incremental operating income from purchasing and selling the milling machine will be $0 ($950,000 $250,000 $700,000). ...
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This note was uploaded on 02/05/2012 for the course ACCOUNTING acct 504 taught by Professor Dehmal during the Spring '10 term at DeVry Pittsburgh.

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31 - 22-31 (Cont'd.) 5. The Surveys of Company Practice Box...

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