Question

Transfer Pricing and Section 482

Sugarland, Inc., has a division in Indonesia that makes dyestuff in a variety of colors used to dye denim for jeans, and another division in the United States that manufactures denim clothing. The Dyestuff Division incurs manufacturing costs of $2.70 for one pound of powdered dye.

The Clothing Division currently buys its dye powder from an outside supplier for $3.60 per pound. If the Clothing Division purchases the powder from the Indonesian division, the shipping costs will be $0.35 per pound, but sales commissions of $0.05 per pound will be avoided with an internal transfer.

Required:

1. Which Section 482 method should be used to calculate the allowable transfer price?

Calculate the appropriate transfer price per pound. Round your answer to the nearest cent.
$ per unit

2. Assume that the Clothing Division cannot buy this type of powder externally since it has an unusual formula that results in a color particular to Sugarland’s jeans. Which Section 482 method should be used to calculate the allowable transfer price?

Calculate the appropriate transfer price per pound. Round your answer to the nearest cent.
$ per unit

Answer 1

Ansuwei hich section 48a method should be usid to Calcelarte the allowable tronafe pice The Compavalle uncontiolled price mthod should be used be Cavse a maiket picc Exists. Cal cularte the tonsfiu pic pe pound Trancf pie market pice t shipfing-markefng e - $3.60 o3s-$0.05 3.95-0.05 = $3.9 Por pound. So1 Trancfey prie = 3.9 per pound The cost-plus me-thod should be usd bcause a moket pi eingto docs not exist, and the Uis.division is not resell th Pairt

Cal cubat tranefer ice pe pourn d Tranfe mee monjasthrg Cost 2.0 0.3 3.05 Por pound Thanefe prie3.05 per pound