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High Value Computer (HVC) is a computer manufacturer located in the US. A key component of the computer is X-chip. Each computer needs one X-chip.
High Value Computer (HVC) is a computer manufacturer located in the US. A key component of the computer is X-chip. Each computer needs one X-chip. X-chip is produced by the X- Chip Division of HVC, and the X-Chip Division is located in South Korea. Computer Division (located in the US) purchases all its X-chip needs from the X-Chip Division. X-Chip Division has the capacity to produce 150,000 chips. Price and cost information for the two divisions are as follows: Sales price of computer $850 Variable manufacturing cost per computer (excluding the x-chip cost) for the Computer Division: Materials S400 Labor $250 Additional parts cost if x-chip is purchased externally $5 Fixed costs of the Computer Division per year 2,000,000 Variable cost of the x-chip division (per chip): Variable manufacturing cost S60 Variable selling cost, if X-chip is sold to external customers $2 Selling price of the x-chip for external customers Buying price of the x-chip from external suppliers Assume that the company manufactures 150,000 computers and both divisions have no changes in inventory. There are no fixed costs associated with the X-Chip Division. Income tax rates are as follows: South Korea 40%, United States 30% Calculate the pre-and post-tax operating income for each division and the company at the following transfer prices. 1. At $85 2. At $60 3. At $72.50 What is the general conclusion based on your answers. Note: Do the calculation for $85 transfer price manually. Then, set-up a formula-based Excel sheet to calculate the pre-and post- tax profits. Make sure that you set-up your Excel sheet so that when you change the two appropriate cells, everything else will change automatically
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