Question: Required informationUse the following information to answer the Problems below. Skip to question Assume NovaTech Innovations is a technology company that produces a variety of
Required informationUse the following information to answer the Problems below.Skip to question
Assume NovaTech Innovations is a technology company that produces a variety of "smart" household appliances, like refrigerators and dishwashers that connect to the internet. NovaTech has a decentralized structure. The smart tech division produces the technology that can be embedded in various household appliances. This technology can be sold to external producers of appliances (like GE or Whirlpool) or can be transferred internally to NovaTech's own appliance divisions. Similarly, NovaTech's appliance divisions can buy similar smart tech from external supplier for $15 per unit. Use the following data to calculate the effects of an internal transfer of technology using a
- (a) market-based,
- (b) cost-based and
- (c) hybrid transfer price.
NovaTech sells its smart technology to external customers for $18 per unit.
NovaTech's appliance division's production budget plans for 750,000 appliances sold per year.
NovaTech's smart tech division produces 1,500,000 smart technology devices per year.
The smart tech division has $50,000 in fixed costs and variable costs average $7.00 per unit.
The appliance division sells appliances for $2500. Fixed manufacturing costs are $75,000. The cost of the smart technology will vary based on the agreed-upon price. Other variable costs amount to $150 per unit.
The full-cost price for the smart tech division has been set at $10 to include the opportunity cost for lost sales to outside customers.
PR 8-13 (Static) (LO 8.6) Assume NovaTech Innovations is a technology company...
Calculate and compare the impact of using Market Price, Full Cost Price, and Hybrid Price as the transfer price between the Smart Tech and Appliance Divisions. However, assume that NovaTech is considering moving its Smart Tech operations to Ireland (with a 12.5% tax rate), Dubai (with a 9% tax rate) or Mexico (with a 30% tax rate). The company has already decided to move the appliance division to Mexico.
Required:
Consider the impact of the different tax rates on overall operating income for NovaTech using a Market Price, Full Cost Price, or Hybrid Price transfer price.
a.1. What is the Smart Tech Division operating income after Ireland's 12.5% tax using market price? a.2. What is the Smart Tech Division operating income after Ireland's 12.5% tax using full cost? a.3. What is the Smart Tech Division operating income after Ireland's 12.5% tax using hybrid price of $17 per unit?
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