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Chinglish Dick (C). Chinglish Dirk Company (Hong Kong) exports razor blades to its wholly owned parent company, Torrington Edge (Great Britain Hong Kong tax rates

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Chinglish Dick (C). Chinglish Dirk Company (Hong Kong) exports razor blades to its wholly owned parent company, Torrington Edge (Great Britain Hong Kong tax rates are 17% and British tax rates are 30% The markup was 15% and the sales volume was 2.500 units Chinglish calculates is peolt per container as follows all values in British pounds) Corporate management of Torrington Edge wishes to reposition profit in Hong Kong. It is, however, facing two constraints. First, the final sales price in Great Britain must be 20,000 or less to remain competitive. Secondly, the British tax authorities -- in working with Torrington Edge's cost accounting stat has established a maximum transfer price allowed (from Hong Kong) of 17,800 Not to leave any potential tax repositioning opportunities unexplored. Torrington Edge wants to combine the components described above 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, prove that the optimal combination of markups is a 35 0% markup at Chinglish and an 4 64% markup in Torrington Edge. What is the impact of this repositioning on consolidated after-tax profits and total tax payments? Calculate the profits of Chinglish Dirk and Torrington Edge, and the consolidated results of both, if the markup at Chinglish was increased to 35 0% and the markup at Torrington was reduced to 4 64% in the following table. (Round to the nearest British pound) Constructing Transfer Chinglish Dirk Torrington Edge Consolidated (Sales) Price per Unit (British pounds) (British pounds) (British pounds) Direct costs 10,000 Overhead 1.750 11,750 Desired markup Transfer price (sales price) f 3.250 Total costs E f E Income Statement Sales price Less total costs Taxable income Less taxes Profit, after-tax f f What is the impact of this repositioning on consolidated after-tax profits and total tax payments? "By both increasing the markup in Hong Kong (and decreasing it in Great Britain) and reallocating over head cost to Great Britain. Torrington's consolidated profits improve once again by positioning profits (losses in the low-tax (high tax) environments. Note that this is an extreme result A 35% markup in Hong Kong with only a 4.64% markup in Great Britain would probably in the end raise the attention of the British tax authorities" The statement above is (Select from the drop-down menu) Data table Constructing Transfer (Sales) Price per Unit Direct costs Overhead Chinglish Dirk (British pounds) 10,000 4,000 Consolidated (British pounds) Torrington Edge (British pounds) 16,100 1,000 17,100 2,565 19,665 Total costs Desired markup Transfer price (sales price) 14,000 2,100 16.100 Income Statement Sales price Less total costs Taxable income 40,250,000 (35,000,000) 5,250,000 (892,500) 4,357,500 49,162,500 (42,750,000) 6,412,500 (1.923,750) 4,488,750 Less taxes 2,816,250 8,846.250 Profit, after-tax f

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