e Tech Friendly Computer, Inc., with headquarters in San Francisco, manufactures and sells a desktop computer. Tech Friendly has three divisions, each of which is located in a different country. Each division is run as a profit center. Information on each division follows: (Click the icon to view the data.) Requirements 1. Calculate the after-tax operating income per unit earned by each division under the following transfer-pricing methods: (a) market price, (b) 200% of full cost, and (c) 350% of variable cost. (Income taxes are not included in the computation of the cost-based transfer prices.) 2. Which transfer-pricing method(s) will maximize the after-tax operating income per unit of Tech Friendly Computer? Requirement 1. Calculate the after-tax operating income per unit earned by each division under the following transfer-pricing methods: (a) market price, (b) 200% of full cost, and (c) 350% of variable cost. (Income taxes are not included in the computation of the cost-based transfer prices.) Begin with calculating the after-tax operating income for the China division under each method. Then complete the table for South Korea and the United States. (Convert all foreign currencies to U.S. dollars.) China division Division revenue per unit Cost per unit: Method A Method B Method C Data table Division variable cost per unit Division fixed cost per unit Total division cost per unit Division operating income per unit Income tax at 40% Division net income per unit Definition a. China division - manufactures memory devices and keyboards b. South Korea division - assembles desktop computers using locally manufactured parts, along with memory devices and keyboards from the China Division c. U.S. division - packages and distributes desktop computers Print Done The costs for the work done in each division for a single desktop computer are as follows: China division: Variable cost Fixed cost 900 yuan 1,980 yuan Variable cost = 350,000 won South Korea division: U.S. division Fixed cost Variable cost 470,000 won $125 Fixed cost = $325 Chinese income tax rate on the China division's operating income: 40% South Korean income tax rate on the South Korea division's operating income: 20% U.S. income tax rate on the U.S. division's operating income: 30% Each desktop computer is sold to retail outlets in the United States for $3,800. Assume that the current foreign exchange rates are as follows: 9 yuan = $1 U.S. 1,000 won = $1 U.S. Both the China and the South Korea divisions sell part of their production under a private label. The China division sells the comparable memory/keyboard package used in each Tech Friendly desktop computer to a Chinese manufacturer for 4,500 yuan. The South Korea division sells the comparable desktop computer to a South Korean distributor for 1,340,000 won. Check answer