Kaili Razor (B). Encouraged by the results in the previous problem’s analysis, corporate management of Supermax wishes to continue to reposition profit in China. It is, however, facing two constraints. First, the final sales price in Great Britain must be 28,300 or less to remain competitive. Second, the British tax authorities—working with Supermax’s cost accounting staff—have established a maximum transfer price allowed (from China) of 24,500. What combination of markups do you recommend for Supermax to institute? What is the impact of this repositioning on consolidated profits on after-tax and total 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