Megabyte Inc. of France and R Ltd. of India are associated enterprises. R Ltd. imports 3,000 compressors for Air Conditioners from Megabyte Inc. at 7,500 per unit and these are sold to Pleasure Cooling Solutions Ltd at a price of 11,000 per unit. R Ltd. had also imported similar products from Cold Inc. Poland and sold outside at a Gross Profit of 20% on Sales. Megabyte Inc. offered a quantity discount of * 1,500 per unit. Cold Inc. could offer only 500 per unit as Quantity Discount. The freight and customs duty paid for imports from Cold Inc. Poland had cost R Ltd. 1,200 per piece. In respect of purchase from Cold Inc., R Ltd. had to pay 200 only as freight charges. Determine the Arm's Length Price and the amount of increase in Total Income of R Ltd.

Megabyte Inc. of France and R Ltd. of India are associated enterprises. R Ltd. imports 3,000 compressors for Air Conditioners from Megabyte Inc. at 7,500 per unit and these are sold to Pleasure Cooling Solutions Ltd at a price of 11,000 per unit. R Ltd. had also imported similar products from Cold Inc. Poland and sold outside at a Gross Profit of 20% on Sales. Megabyte Inc. offered a quantity discount of * 1,500 per unit. Cold Inc. could offer only 500 per unit as Quantity Discount. The freight and customs duty paid for imports from Cold Inc. Poland had cost R Ltd. 1,200 per piece. In respect of purchase from Cold Inc., R Ltd. had to pay 200 only as freight charges. Determine the Arm's Length Price and the amount of increase in Total Income of R Ltd.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 14E

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