Question

For many years Miller Company manufactured television tubes in Massachusetts at a per unit cost of $100 for direct labor, $50 for direct material, and $20 for overhead. A portion of production was sold to Fiona Manufacturing, Ltd., Miller´s wholly owned distribution affiliate in Ireland, for $220 per unit. The Irish affiliate incurred an additional $30 per unit of direct costs and resold to European television manufactures for $300 per unit. No other costs were involved, expect for income taxes at 46% in both countries.

Comprehensive tax reform legislation passed by the U.S. Congress in 1986 lowered U.S. corporate income taxes to 34%, effective in 1987. Miller judged that it could raise or lower its export sales price to its Irish affiliate by up to 10% without causing a tax challenge from either Irish or U.S. tax authorities. Miller´s president wondered if she should change the firm´s Irish transfer price in the light of the new U.S. tax law.

a/ In 1986, what was Miller´s consolidated after-tax profit per unit sold to Fiona?

The consolidated after-tax profit per unit is _____ $. (round your answer to 2 decimals in $ and fill 0 to meet 2 decimals requirement if needed).

b/ In 1987 with no change in transfer price, what was Miller´s consolidated after-tax profit per unit sold to Fiona?

The consolidated after-tax profit per unit is _____ $. (round your answer to 2 decimals in $ and fill 0 to meet 2 decimals requirement if needed).

c/ In 1987 with 10 % increase in the transfer price, what was Miller´s consolidated after-tax profit per unit sold to Fiona?

The consolidated after-tax profit per unit is  $. (round your answer to 2 decimals in $ and fill 0 to meet 2 decimals requirement if needed)

d/ In 1987 with 10 % decrease in the transfer price, what was Miller´s consolidated after-tax profit per unit sold to Fiona?

The consolidated after-tax profit per unit is _____  $. (round your answer to 2 decimals in $ and fill 0 to meet 2 decimals requirement if needed).

Answer 1

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