34 - 22-32(Cont’d)One possibility might be to implement a...

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Unformatted text preview: 22-32(Cont’d.)One possibility might be to implement a dual-pricing scheme in which the machine is transferred at cost ($500,000), but under which Anita Corporation is credited with after-tax operating income earned on the machine by the subsidiary it ships the machine to (in this example, $170,000 of net income earned by the Swiss subsidiary). A negative feature of this arrangement is that the $170,000 of after-tax operating income will be "double counted" and recognized on the books of both Anita Corporation and the Swiss subsidiary.Another possibility might be to evaluate the managers on the basis of overall after-tax operating income of Anita Corporation and its subsidiaries. This approach will induce a more global perspective, but at the cost of inducing a larger noncontrollable element in each manager's performance measure.22.33(30 min.) Transfer pricing, goal congruence.1a. & b. As the following calculations show, if Johnson Corporation offers a price of $37 per cassette deck, Sather Corporation should purchase the cassette decks from...
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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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34 - 22-32(Cont’d)One possibility might be to implement a...

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