Question

TerraTec, Inc., is a distributor of gardening supplies. The company is currently exploring manufacturing facilities in a foreign country that has a tax rate of 20 percent, where it will produce a popular gardening tool that it sells in the United States for $50. TerraTec estimates the actual cost of producing the tool at $20 per unit. The company’s U.S. tax rate is 30 percent.

Required
A. Calculate the total after-tax profits that TerraTec would earn if the company sets a transfer price based on a 40 percent markup on cost.
B. Calculate the total after-tax profits that TerraTec would earn if the company sets a transfer price based on a 70 percent markup on cost.



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  • CreatedMarch 11, 2015
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