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Calculate transfer price between fintel and its french sale

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Question

Fintel Corporation, a Finnish manufacturer of cellular telephones, wishes to invoice a French sales affiliate for an order of 12,000 units. Relevant facts on a per unit basis are as follows: Net sales price charged by the French sales affiliate to retail customers, €450; other operating expenses borne by the French sales affiliate, €63.

The French sales affiliate also bears freight and insurance costs of €1 per unit and packaging costs of €1.50 per unit. The French sales affiliate pays custom duties of 5 percent. Sales affiliates of other manufacturers of cellular telephones similar to those Fintel produces for the French market earn gross profit margins of 6 percent on sales to retail customers in France.

Required:

Calculate a transfer price between Fintel and its French sales affiliate such that the French affiliate covers all its costs and earns an appropriate gross profit.

Reference no: EM132319451

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