B The processing division's yield is 50%: It takes 2 tons of raw potash to produce 1 ton of top-grade fertilizer. Although all of the mining division's output of 17,000 tons of potash is sent for processing in the United States, there is also an active market for potash in Italy. The foreign exchange rate is 0.80 Euro = $1 U.S. The following information is known about the two divisions: : (Click the icon to view the information.) Read the requirements 56 EURO 128 EURO 312 EURO 1 North Italy Mining Division 2 Variable cost per ton of raw potash 3 Fixed cost per ton of raw potash 4 Market price per ton of raw potash 5 Tax rate 6 U.S. Processing Division 7 Variable cost per ton of fertilizer 8 Fixed cost per ton of fertilizer 9 Market price per ton of fertilizer 30% -pricing methods: (a) 150% of full cost and (b) market price. hg income for the U.S. processing division under each method. (Enter all amounts in U.S. dollars.) $51 U.S. dollars $125 U.S. dollars $1.120 US dollars 10 Tax rate 35% Print Done Requirement 1. Compute the annual pretax operating income, in U.S. dollars of each division under the following transfer-pricing methods: (a) 150% of full cost and (b) market price. Begin by computing the operating income for the North Italy mining division under each method, then calculate the operating income for the U.S. processing division under each method. (Enter all amounts in U.S. dollars.) 150% of Full Cost Market Price North Italy Mining division Division revenue Cost: Division variable cost Division fixed cost Total division cost Division operating income U.S. Processing division Division revenue Cost: Transferred-in cost Division variable cost Division fixed cost Total division cos! Division operating income Requirement 2. Compute the after-tax operating income, in U.S. dollars, for each division under the transfer pricing methods in requirement 1. (Income taxes are not included in the computation of cost-based transfer price, and Pure Grow does not pay U.S. income tax on income already taxed in Italy.) (Enter all amounts in U.S. dollars.) Begin by computing the after-tax operating income for the North Italy mining division under each method, then calculate the after-tax operating income for the U.S. processing division under each method Requirement 3. If the two division managers are compensated based on after-tax division operating income, which transfer pricing method will each prefer? Which transfer pricing method will maximize the total after-tax operating income of Pure Grow? The North Italy Mining Division manager will prefer the transfer price of and the U.S. Processing Division manager will prefer the transfer price equal to Pure Grow will maximize companywide net income by using the based transfer pricing method. Requirement 4. In addition to tax minimization, what other factors might Pure Grow consider in choosing a transfer pricing method? 4 The following are factors that executives consider important in transfer pricing decisions: B The processing division's yield is 50%: It takes 2 tons of raw potash to produce 1 ton of top-grade fertilizer. Although all of the mining division's output of 17,000 tons of potash is sent for processing in the United States, there is also an active market for potash in Italy. The foreign exchange rate is 0.80 Euro = $1 U.S. The following information is known about the two divisions: : (Click the icon to view the information.) Read the requirements 56 EURO 128 EURO 312 EURO 1 North Italy Mining Division 2 Variable cost per ton of raw potash 3 Fixed cost per ton of raw potash 4 Market price per ton of raw potash 5 Tax rate 6 U.S. Processing Division 7 Variable cost per ton of fertilizer 8 Fixed cost per ton of fertilizer 9 Market price per ton of fertilizer 30% -pricing methods: (a) 150% of full cost and (b) market price. hg income for the U.S. processing division under each method. (Enter all amounts in U.S. dollars.) $51 U.S. dollars $125 U.S. dollars $1.120 US dollars 10 Tax rate 35% Print Done Requirement 1. Compute the annual pretax operating income, in U.S. dollars of each division under the following transfer-pricing methods: (a) 150% of full cost and (b) market price. Begin by computing the operating income for the North Italy mining division under each method, then calculate the operating income for the U.S. processing division under each method. (Enter all amounts in U.S. dollars.) 150% of Full Cost Market Price North Italy Mining division Division revenue Cost: Division variable cost Division fixed cost Total division cost Division operating income U.S. Processing division Division revenue Cost: Transferred-in cost Division variable cost Division fixed cost Total division cos! Division operating income Requirement 2. Compute the after-tax operating income, in U.S. dollars, for each division under the transfer pricing methods in requirement 1. (Income taxes are not included in the computation of cost-based transfer price, and Pure Grow does not pay U.S. income tax on income already taxed in Italy.) (Enter all amounts in U.S. dollars.) Begin by computing the after-tax operating income for the North Italy mining division under each method, then calculate the after-tax operating income for the U.S. processing division under each method Requirement 3. If the two division managers are compensated based on after-tax division operating income, which transfer pricing method will each prefer? Which transfer pricing method will maximize the total after-tax operating income of Pure Grow? The North Italy Mining Division manager will prefer the transfer price of and the U.S. Processing Division manager will prefer the transfer price equal to Pure Grow will maximize companywide net income by using the based transfer pricing method. Requirement 4. In addition to tax minimization, what other factors might Pure Grow consider in choosing a transfer pricing method? 4 The following are factors that executives consider important in transfer pricing decisions