Calculate and Compare the Difference in Overall Corporate Net Income

question 37

Multiple Choice

Calculate and compare the difference in overall corporate net income between Scenario A and Scenario B if the Assembly Division sells 100,000 pairs of shoes for $120 per pair to customers. Scenario A: Negotiated transfer price of $30 per pair of soles
Scenario B: Market-based transfer price

• A)$1,000,000 more net income under Scenario A
• B)$1,000,000 of net income using Scenario B
• C)$200,000 of net income using Scenario A
• D)None of the above is correct.

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Definitions:

Income Tax Treatment

Refers to the way tax laws are applied to an individual's or entity's income, including deductions, exemptions, and the calculation of taxes owed.

Direct Pay

The monetary compensation received by employees for their work, including wages, salaries, bonuses, and commissions.

Competitive Pressure

The influence and constraints exerted by competition within a market, which force companies to continuously improve.

Indirect Pay

Employee compensation that includes non-monetary benefits such as health insurance, retirement plans, and paid time off, rather than direct cash payments.