Business / Nining Case

Nining Case

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Autor:  nining  25 October 2011
Tags:  Transfer Pricing Among Related Businesses-Kirpatrick Associates,  Incorporated
Words: 268   |   Pages: 2
Views: 414

Advanced Management Accounting, R. S. Kaplan, A. A. Atkinson,

International Edition, Third Edition, Prentice Hall International, Inc, 1998

p. 486.

Required

(1) Determine the profit the K&S Construction Company for this sale.

Construction Company to Mr. Baxter.

Price of new house $200,000

Trade-in form old house 50,000

Cash(From mortgage) 150,000

Value received

Cash $150,000

Trade-in 40,000

Total $190,000

Cost of building new house 160,000

Profit $ 30,000

• Cost of repairing roof & basement are $4,000 & $2,000 should be blamed to Columbus Remodeling Company .

(2) What should the charge be for fixing up the house.

At boom season:10000+6000

off-season:16000<charge<13000

(3) Who should be charged with the fixing-up cost?Why? Are there any changes in procedures you would suggest?

Both K&S Construction Company and Columbus Remodeling Company should be charged with the fixing-up cost .Because K&S Construction Company should be responsible for the appraisal of Trade-in form old house,and Columbus Remodeling Company should be responsible for the Cost of repairing roof & basement.

Although close cooperation, they have grown to be independent and inside company compete with outside . In this situation ,they won't get any advantage from others .They may negotiate transfer pricing among

Related business.

(4) If the house is to be sold to outsiders, what alternatives are open to the company?

i. Not remodel and sell out.

ii. Remodel but not repair roof & basement then sell out.

iii. Remodel and repair roof & basement then sell out.

iv. Some time Sell out.

(5) If the house is sold to the rental company, what is its price?

The cost of repairing roof & basement ( $4,000+ $2,000) should be cost to the rental company. The house is sold $34000($40000-$6000) to the rental company.



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