Reference no: EM133037296

Question - In each of the following independent situations involving transfers of tangible property, determine which transfer pricing methods applies and compute a transfer price using the appropriate method. Show all of your computations.

A. Dougco, a domestic corporation, owns 100% of Fco, a foreign corporation. Dougco manufactures top-of-the-line office chairs at a cost of $300 per unit and sells them to Fco, which resells the goods (without any further processing) to unrelated foreign customers for $450 each. Independent foreign distributors typically earn commissions of 20% (expressed as a percentage of the sales price) on the purchase and resale of products comparable to those produced by Dougco.

b. Clairco, a domestic corporation, owns 100% of Fco, a foreign corporation that manufactures women's running shoes at a cost of $30 each and sells them to Clairco. Clairco attaches its trade name to the shoes (which has a significant effect on their resale price), and resells them to unrelated customers in the United States for $80 each. Independent foreign manufacturers producing similar running shoes typically earn a gross profit mark-up (expressed as a percentage of the manufacturing costs) of 15%.