2 In order to reduce income taxes Gemini should use a transfer price of 64

# 2 in order to reduce income taxes gemini should use a

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Variable cost per unit64.00Contribution margin per unit0.00Income taxes0.00Increase in division income per unit after tax\$ 0.00Castor’s after tax income on each unit is as follow:Revenue per unit\$120.00Variable cost per unit64.00Contribution margin per unit56.00Income taxes (0.30 x \$56)16.80Increase in division income per unit after tax\$ 39.20b. Castor will not want that Pollux takes the offer.c. Pollux will want to take the order because its income per unit after tax will increase by \$3.60 per unit by accepting the special order instead of transferring. d. Gemini should set the transfer price at \$70 per unit.Minimum transfer price = \$64 + \$6 = \$70 per unit for the first 8,000 units\$64 + \$0 = \$64 per unit for the next 7,000 unitsGemini should consider this transfer prices since they are a very reasonable and tax efficient. The increase in Gemini’s income will be as follow:From Pollux:Revenue per unit\$70.00Variable cost per unit64.00Contribution margin per unit6.00Income taxes (0.40 x \$6)2.40Increase in division income per unit after tax\$ 3.60From Castor:Revenue per unit\$120.00Variable cost per unit70.00Contribution margin per unit50.00Income taxes (0.30 x \$50)15.00Increase in division income per unit after tax\$ 35.00Increase in Gemini’s income = \$3.60 + \$35.00 = \$38.60221.The transfer price is 110% of the full cost per unit:1.10 [(\$0.075 x 100) + \$6.35 + \$2.15] = \$17.60
The manager would purchase the 2,000 rolls from ecofree since \$17.00 is below the transfer price of \$17.60.2.\$18.50 is an appropriate market price and not \$17.00 because it could not be replicated. The manufacturing manager was not thinking straight because they were withholding pertinent information from the uppers management and the recycling division manager. 221.\$80,000: (10,000 units) x (\$32 - \$12 - \$8) - \$80,000 = \$40,000\$120,000: (15,000 units) x (\$32 - \$12 - \$8) - \$120,000 = \$60,000\$160,000: (18,000 units) x (\$32 - \$12 - \$8) - \$160,000 = \$56,0002.Croydon receives a transfer price of \$8 for each additional unit. However, it is incurring a variablecost of \$4.80 for infrared LED. 3.(10,000 units) x (\$32 - \$12 - \$4.80) - \$80,000 = \$72,000(15,000 units) x (\$32 - \$12 - \$4.80) - \$120,000 = \$108,000(18,000 units) x (\$32 - \$12 - \$4.80) - \$160,000 = \$113,6004.(18,000 units) x (\$32 - \$12 – p) - \$160,0000 ≥ (15,000 units) x (\$32 - \$12 – p) - \$120,000or (3,000 units) x (\$20 – p) ≥ \$40,000or p ≤ \$6.67(18,000 units) x (\$32 - \$12 – p) - \$160,0000 ≥ (10,000 units) x (\$32 - \$12 – p) - \$80,000or (8,000 units) x (\$20 – p) ≥ \$80,000or p ≤ \$10221.The answer is as follow:Pounds of ranbax processed in S1,0002,0003,0004,000Total net revenues from sale of syntax\$500\$850\$1,100\$1,200
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