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Babcock Company manufactures fast-baking ovens in the United States. Production...

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Accounting

Babcock Company manufactures fast-baking ovens in the United States.
Production cost 500 Per unit
Sells to uncontrolled distributors in the U.S. and a wholly owned sales subsidiary in Canada.
Babcock's U.S. distributors sell the ovens to restaurants for 1000 Per unit
Babcock's Canadian subsidiary sell the ovens for 1100 Per unit
Other distributors of ovens to restaurants in Canada normally earn a gross profit equal to 25% of selling price
Babcock's main competitor in the U.S. sells fast-baking ovens at an average markup of 50% on cost
Babcock's Canadian sales subsidiary incurs operating costs, other than cost of goods sold of 250 per oven sold
Average operating profit margin earned by Canadian distributors of fast-baking ovens is 5%
Required:
1. Compute an acceptable transfer price under the resale price method:
Selling price
Less: Normal gross profit
Resale price
2. Compute an acceptable transfer price under the cost-plus method:
Cost
Add: Markup
Resale price
3. Compute an acceptable transfer price under the comparable profits method:
Sales
Less: Operating costs
Less: Operating profit
Cost of goods sold (transfer price)

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