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Easy KeysEasy Keys Computer, Inc., with headquarters in San Francisco, manufactures and sells a desktop computer. Easy KeysEasy Keys has three divisions LOADING... , each

Easy KeysEasy Keys

Computer, Inc., with headquarters in San Francisco, manufactures and sells a desktop computer.

Easy KeysEasy Keys

has three divisions

LOADING...

, each of which is located in a different country. Each division is run as a profit center. Information on each division follows:

LOADING...

(Click 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)

200200%

of full cost, and (c)

350350%

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

Easy KeysEasy Keys

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)

200200%

of full cost, and (c)

350350%

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.)

Method A

Method B

Method C

China division

Division revenue per unit

Cost per unit:

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

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