Kaili Razor (A). Corporate management of Supermax is considering repositioning profits within the multinational company. What happens to the profits of Kaili Razor and Supermax, and the consolidated results of both, if the markup at Kaili was increased to 20% and the markup at Supermax was reduced to 10%? What is the impact of this repositioning on consolidated tax payments?

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Constructing Transfer (Sales) Price per Unit Direct costs Kaili Razor Supermax (British pounds) (British pounds) 15,000 22,425 Overhead 4,500 1,800 Total costs 19,500 24,225 Desired markup 2,925 3,634 Transfer price 22,425 27,859 (sales price) Income Statement Sales price 22,425,000 27,858,750 Less total costs (19,500,000) (24,225,000) Taxable income 2,925,000 3,633,750 Less taxes (585,000) (1,017,450) Profit, after-tax 2,340,000 2,616,300