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Office Friendly Computer Inc., with headquarters in Nepean, Ontario, manufactures and sells a premium desktop computer system. Office Friendly has three divisions, each of which
Office Friendly Computer Inc., with headquarters in Nepean, Ontario, manufactures and sells a premium desktop computer system. Office Friendly has three divisions, each of which is located in a different country. Each division is run as a profit centre. The costs for the work done in each division for a single desktop computer system are as follows: E: (Click the icon to view the data.) Required 1. Calculate the after-tax operating income per unit earned by each division under the following transfer pricing methods: (a) market price, (b) 250% 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 Office Friendly Computer Inc.? Requirement 1. Calculate the after-tax operating income per unit earned by each division under the following transfer pricing methods: (a) market price, (b) 250% 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 Canada. (Convert all foreign currencies to CA$. Round all amounts to the nearest cent.) 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 Data table = China division Variable cost 1,100 yuan Fixed cost = 2,100 yuan South Korea division Variable cost = 392,000 won Fixed cost 532,000 won Canada division Variable cost = CA$70 Fixed cost = CA$325 Chinese income tax rate on China division's operating income 40% South Korean income tax rate on South Korea division's operating income 24% Canadian income tax rate on Canada division's operating income 35% Each desktop computer package is sold to retail outlets in Canada for $4,200. Assume that the current foreign exchange rates are as follows: 10 yuan CA$1 1,400 won = CA$1 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 Office Friendly desktop computer to a Chinese manufacturer for 3,300 yuan. The South Korea division sells the comparable desktop computer package to a South Korean distributor for 1,680,000 won. Print Done
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