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 33%. The markup was 15% and the sales volume was 3,000 units. Chinglish calculates its profit per container as follows (all values in British pounds):

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.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

authoritieslong dashin working with Torrington Edge's cost accounting stafflong dashhas 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		3,250
Total costs		11,750
Desired markup
Transfer price (sales price)
Income Statement
Sales price
Less total costs
Taxable income
Less taxes
Profit, after-tax