Cascade Containers is organized into two divisions$-$Manufacturing and

Distribution. Manufacturing produces a product that can be sold immediately or

transferred to Distribution for further processing and then sold. Distribution only

buys from Manufacturing for quality control reasons.

Manufacturing currently sells $8,100$ units annually at a price of $$600$ per unit to

outside customers. It sells an additional $1,200$ units to Distribution. The unit variable

cost in Manufacturing is $$300$ and annual fixed costs are $$2,200,000.$

Manufacturing is located in a country with a $20$ percent tax rate.

Distribution can sell units that have had further processing for $$2,150$ each. In

addition to what it pays Manufacturing, the variable costs in Distribution are $$150$

per unit. Annual fixed costs in Distribution are $$550,000.$ Distribution is located in a

country with a $10$ percent tax rate.

Required:

a$.$ Suppose Manufacturing would have excess capacity even with the demand from

Distribution. Ignoring tax implications, what transfer price would you recommend

Cascade Containers adopt?

b$.$ What would be the total taxes Cascade Containers paid under the policy you

recommend in requirement $($a$)?$

c$.$ Suppose Manufacturing has no excess capacity. Ignoring tax implications, what

transfer price would you recommend Cascade Containers adopt?

d$.$ What would be the total taxes Cascade Containers paid under the policy you

recommend in requirement $($c$)?$

a$.$ Transfer price $($Excess capacity$)$

b$.$ Total taxes paid $($Excess capacity$)$

c$.$ Transfer price $($No excess capacity$)$

d$.$ Total taxes paid $($No excess capacity$)$