Chinglish Dirk (C). Not to leave any potential tax repositioning opportunities unexplored, Torrington Edge wants to combine the components of Problems 4 and 5 with a redistribution of overhead costs. If overhead costs could be reallocated between the two units, but still total £5,000 per unit, and maintain a minimum of £1,750 per unit in Hong Kong, what is the impact of this repositioning on consolidated profits after-tax and total tax payments?

Chinglish Dirk Company (Hong Kong) exports razor blades to its wholly owned parent company, Torrington Edge (Great Britain). Hong Kong tax rates are 16% and British tax rates are 30%. Chinglish calculates its profit per container as follows (all values in British pounds).

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Direct costs Constructing Transfer Chinglish Dirk Torrington Edge (Sales) Price per Unit (British pounds) (British pounds) 16,100 10,000 Overhead 4,000 1,000 Total costs 14,000 17,100 Desired markup 2,100 2,565 Transfer price 16,100 19,665 (sales price) Income Statement Sales price 16,100,000 19,665,000 Less total costs (14,000,000) (17,100,000) Taxable income 2,100,000 2,565,000 Less taxes (336,000) (769,500) Profit, after-tax 1,764,000 1,795,500