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 $2.68 for one pound of powdered dye.
The Clothing Division currently buys its dye powder from an outside supplier for $3.80 per pound. If the Clothing Division purchases the powder from the Indonesian division, the shipping costs will be $0.34 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?
PICK ONE
Comparable uncontrolled price method
Cost-plus price method
Resale price method
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?
PICK ONE
-Comparable uncontrolled price method
-Cost-plus price method
-Resale price method Item
Calculate the appropriate transfer price per pound. Round your answer to the nearest cent.
$_______ per unit