QUESTIONS:

1. Determine the NET INCOME per unit of the CONSOLIDATED COMPANY if they adopted the Low Mark Up Policy.

2. Determine the NET INCOME per unit of the CONSOLIDATED COMPANY if they adopted the High Mark Up Policy.

3. What price transfer strategy would you adopt and what would the NET INCOME gain be by adopng your strategy, assuming you sold 5000 units?

Mintel Products, Inc. manufactures goods for sale in the United States and overseas. Finished goods are transferred from manufacturing firm to its wholly owned sales affiliate for overseas retail sale. Mintel's financial manager, Mr. Siu Pao, has decided that the firm's transfer pricing strategy should be reevaluated as part of a routine review of the operations of the sales affiliate. Mr. Siu Pao has decided to explore both low and high markup policies for transfer pricing. He notes that the manufacturing affiliate has a tax rate of 25% and the sales affiliate has a 35% income tax rate, that the variable production cost of one unit is $1,500, and that the unit retail sales price charged by the sales affiliate to the final customer is $3,000. Mr. Siu has to decide whether to use a low mark up policy of $2000 per unit or a high mark up policy of $2400. Consider Operating Expenses of $200 per unit on both low and high mark up strategies for each of the affiliates. Furthermore, the sales affiliate is subject to a 8% duty on the imported goods. Using the template below