Compaq Computer Corporation and Subsidiaries - Page 34




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          minor physical differences.  The difference in price relating to            
          the minor differences in physical properties can be quantified              
          with definite and reasonably ascertainable adjustments.  See sec.           
          1.482-2A(e)(2)(ii), Example (3), Income Tax Regs. ("Since minor             
          physical differences in the product generally have a definite and           
          reasonably ascertainable effect on prices, such differences do              
          not normally render the uncontrolled sales noncomparable to the             
          controlled sales.").                                                        
               The record demonstrates that the only differences in PCA's             
          within each product category were the particular components used            
          on each individual PCA and the time required to process PCA's on            
          the manufacturing line.  We are persuaded that these differences            
          can be corrected with adjustments to Compaq U.S. standard costs.            
          The Compaq U.S. standard cost of labor and overhead is equal to             
          the time required to process a given PCA multiplied by the Compaq           
          U.S. hourly labor and overhead rate.  The Compaq U.S. standard              
          material cost for a given PCA is the sum of the unburdened                  
          purchase order prices for each and every component used on the              
          PCA as set forth in the bill of materials.  Thus, according to              
          petitioner, the Compaq U.S. standard costs account for                      
          differences in the time required to process a PCA and in the cost           
          of the materials on the PCA.                                                
               Based on the uncontrolled purchases of 3.6 million PCA's,              
          the turnkey equivalent price of PCA's purchased from unrelated              





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