SEMO Incorporated Has a Division Located in Spain and Another

question 122

Essay

SEMO Incorporated has a division located in Spain and another in the United States. The Spanish Division produces a part needed for the product made by the U.S. Division. There is substantial excess capacity in the Spanish Division. The tax rate of the Spanish Division is 35% and U.S. Division tax rate is 30%.
The part sells externally for $75 and the Spanish division's manufacturing costs are:
$\begin{array}{llr} \text { Direct materials } &\$32\\ \text { Direct labor} &12\\ \text { Variable overhead } &6\\ \text {Fixed overhead } &19\\\end{array}$

Required:
a) What would be the lowest acceptable transfer price for the Spanish division?
b) What would be the highest acceptable transfer price for the U.S. division?
c) What would be the transfer price that would be the best for SEMO Incorporated and why?

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Definitions:

Relational Aggression

A type of aggression focused on harming others through manipulation or damage to relationships and social status, rather than physical harm.

Overt Aggression

Direct, openly hostile behaviors intended to harm others physically or psychologically, distinguished from more subtle forms like passive aggression.

Developmental Changes

Transformations or transitions in physical, cognitive, social, or emotional domains across the lifespan.

Moral Reasoning

The process by which individuals make decisions about what is right and wrong, based on ethical principles.