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

People Able 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.$)$

Requirement $1.$ Calculate the after$-$tax operating income per unit earned by each division under the following transfer$-$pricin

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

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

Three Divisions

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

Requirements

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$)300\%$ of variable

cost$.($Income taxes are not included in the computation of the cost$-$based transfer prices.$)$

Which transfer$-$pricing method$($s$)$ will maximize the after$-$tax operating income per unit of

People Able Computer?

Data table

The costs for the work done in each division for a single desktop computer are

as follows:

China division:

Variable cost $=1,000$ yuan

Fixed cost $=1,800$ yuan

Variable cost $=360,000$ won

Fixed cost $=480,000$ won

Variable cost $=$$$100$

Fixed cost $=$$$200$

South Korea division:

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: $28\%$

Each desktop computer is sold to retail outlets in the United States for $$3,200.$ Assume

that the current foreign exchange rates are as follows:

$8$ yuan $=$$$1U.S.$

$1,200$ won $=$$$1U.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

People Able desktop computer to a Chinese manufacturer for $3,600$ yuan. The South

Korea division sells the comparable desktop computer to a South Korean distributor for

$1,560,000$ won.