Life Good Electronics Company, an Australian firm, operates a subsidiary in Singapore (Singapore Electronics) which produces guitars. The following information has been provided to you: 

1. The production cost of $120 per unit based on operations at full capacity of 10 000 units. Singapore Electronics sells the guitars to two customers in Australia. Australian Electronics (a fully owned subsidiary of Life Good Electronics Company) and Target Australia (an independent customer). 

2. Operating expenses are $15 per unit in Australia and $10 in Singapore. 

3. The cost to transport the guitars to Australia is $15 per unit and is paid by Singapore Electronics. 

4. Other Singaporean manufacturers of guitars sell them to customers in Australia at a mark-up on total cost of 20 percent. 

5. Target and Australian Electronics pays applicable Australian import duties on its purchases from Singapore Electronics. 

6. Target places a reasonable mark-up on guitars and sells them at a retail price of $324 per unit. Australian Electronics sells the guitars at a retail price of $333 per unit. 

7. In Australia import duty is 20%. Import duties are deductible for tax purposes. 

8. In Australia income tax rate is 35% and in Singapore income tax rate is 15%.

 

Required: Based on the above information calculate the net profit after tax when the transfer price is based on total cost plus mark-up of 20 percent assuming all units produced are purchased solely by Australian Electronics. 

Answer rating: 100% (QA)

lets break down the calculation step by step 1 Production Cost per unit 120 2 Operating expenses in ... View the full answer