Slagle Corporation is a large manufacturing organization. Over the past several years, it has obtained an important
Question:
Slagle Corporation is a large manufacturing organization. Over the past several years, it has obtained an important component used in its production process exclusively from Harrison, Inc., a relatively small company in Topeka, Kansas. Harrison charges $90 per unit for this part:
Variable cost per unit $40
Fixed cost assigned per unit 30
Markup 20
Total price $90
In hope of reducing manufacturing costs, Slagle purchases all of Harrison's outstanding common stock. This new subsidiary continues to sell merchandise to a number of outside customers as well as to Slagle. Thus, for internal reporting purposes, Slagle views Harrison as a separate profit center.
A controversy has now arisen among company officials about the amount that Harrison should charge Slagle for each component. The administrator in charge of the subsidiary wants to continue the $90 price. He believes this figure best reflects the division's profitability:
Expert Answer:
Transfer pricing is an important issue for the management These needs to be looked into with due diligence Transfer pricing is actually a topic for a ... View the full answer
