Reference no: EM132835307
Question - LG is a division of Steveco and produces barbeques. LG sells these barbeques to big box stores like Home Depot and Lowes, as well as to GS BBQ Stores which is a division of Steveco. The following information is available for SG:
Fixed costs per unit $150
Variable cost per unit 300
SG Selling price to Home Depot/Lowes 580
LG can purchase comparable barbeques from a Weber BBQ for $485. To avoid too much reliance on an external supplier, Steveco management wants SG to provide 17,000 barbeques per year at a transfer price of $485 per unit to GS BBQ Stores. GS sells these barbeques for $850. SG is currently operating at full capacity. By selling to GS, SG can avoid $9 per unit of variable selling costs. SG manufactures a total of 110,000 barbeques a year.
Calculate the minimum transfer price that SG would charge to remain financially neutral.
Calculate the increase (decrease) in total contribution margin for Gibco for the above transfer price for 17,000.
The tax rate for GS, which is in the USA is 35%, and is 25% for GS which is in Canada. Is it better for Gibco to sell at $485 or $580? SHOW YOUR CALCULATIONS PROVING YOUR ANSWER.
The tax rate for GS, which is in the USA, is 25%, and is 35% for GS which is in Canada. Is it better for Gibco to sell at $480 or $580?
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