Is it ethical to choose a transfer price for tax purposes

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Reference no: EM13134148

"Gage Corporation has two operating divisions in a semi autonomous organizational structure. Adams Division, located in the United States, produces a specialized electrical component that is an input to Bute Division, located in the south of England. Adams uses idle capacity to produce the component, which has a domestic market price of $36. Its variable costs are $15 per unit. Gage's U.S. tax rate is 40 percent of income.

In addition to the transfer price for each component received from Adams, Bute pays a $9 per unit shipping fee. The component becomes a part of its assembled product, which costs an addition $6 to produce and sells for an equivalent of $69. Bute could purchase the component from a Manchester (England) supplier for $30 per unit. Gage's English tax rate is 70 percent of income. Assume that English tax laws permit transferring at either variable cost or market price.

Is it ethical to choose a transfer price for tax purposes that is different from the transfer price used to evaluate a business unit's performance?

Reference no: EM13134148

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