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Hi
i am confused about part b of this qs how they calculate transfer price by applying tax rates?In this question they are not really calculating a transfer price, but they are examining the consequences of buying from within the group or an outside supplier.
Division A is not a problem, but the tax in Division B is confusing because you don’t know the revenue figure there. What they are doing is saying that if Division B has a cost of 162,000, then this is effectively lowered because it will receive tax relief at 20% on this espense.
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