Question
Aston Electronics Corp. manufactures consumer electronic products in Canada.The variable and fixed production costs for producing electronic circuit boards is $270 and $45 respectively, and
Aston Electronics Corp. manufactures consumer electronic products in Canada.The variable and fixed production costs for producing electronic circuit boards is $270 and $45 respectively, and the company can sell its entire supply domestically for $390.The Canadian tax rate is 44%.
Alternatively, Aston can ship the circuit boards to its division in Japan for further processing.Information about the Japanese product and the division's operating environment are below.
Selling price of final product$770
Shipping fees to Japan$30
Additional variable costs$220
Import duties levied on circuit board
(to be paid by the Japanese division)5% of transfer price
Japanese tax rate34%
Aston's management is exploring which transfer price more beneficial to the company as a whole.Assume that Canadian and Japanese tax authorities allow any transfer price suggested by Aston.
Required:
(A)Assume that the transfer price is variable costs of Canadian division plus 35%.
(show separate detailed calculations for the profit (or loss) for the Japanese division)
(B)Assume that the transfer price is full costs of Canadian division plus 20%.
(show separate detailed calculations for the profit (or loss) for the Japanese division)
(C)Assume that there is no internal transfer between the Canadian and Japanese divisions.The Japanese division will obtain the circuit board in Japan for $360 and the Canadian division will sell the circuit board in the Canadian market.
(show separate detailed calculations for the profit (or loss) for both the Canadian and Japanese division)
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