Required Given the information provided discuss the issues related to using a

Required given the information provided discuss the

This preview shows page 13 - 14 out of 14 pages.

the brakes manufactured by Superior and Bomfreio.Required:Given the information provided, discuss the issues related to using (a) thecomparable uncontrolled price method, (b) the resale price method, and(c) the cost-plus method to determine an acceptable transfer price for the saleof truck brakes from Superior Brakes Corporation to its Brazilian subsidiaryaSuperior Brakes sells directly to truck manufacturers in the United States, and to its 100% owned sales subsidiary in Brazil. The Brazilian sales subsidiary sells directly ttruck makers. Since Superior Brakes does not sell to unaffiliated distributors in Brazno comparable uncontrolled transaction from which a comparable uncontrolled pricedetermined. If Superior Brakes were to sell to unaffiliated truck brake distributors inthe price charged could be considered a reliable arm’s length price under the comparauncontrolled price method if there are no substantive differences in the terms of the sbThe resale price method is primary used when the buyer/reseller is merely a distributfinished goods and does not add a substantial amount of value to the product.This is true for Superior’s Brazilian sales subsidiary. To use this method,the final selling price to uncontrolled parties must be known and an appropriate grossprofit for the reseller must be determinable. Information on an appropriate gross profor distributors of truck brakes is not provided. The problem stated that other than saBrazil, Superior Brakes does not use a distributor but instead sells directly to truck manufacturers. The only competitor, for which information is provided, Bomfreio, also does not use a distributor for sales of its truck brakescThe cost plus method requires the known of the cost of the product and an appropriate gross profit markup for sales to distributors made by other truck brake manufacturers. Since there is no information given about gross profit markups on saby other truck brake manufacturers to distributors, so the appropriate gross profit mar
Image of page 13
to Brazilian zil so there is e can be n Brazilable sales. tor of s ofit markup ales in ales made rkup is unknown.
Image of page 14

You've reached the end of your free preview.

Want to read all 14 pages?

  • Fall '15
  • Snow,Natalya
  • Taxation in the United States

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture