Rocker Company - Comprehensive Transfer Pricing Case

Rocker U.S. manufactures low power, low water consuming commercial dishwashers in Malaysia, through their wholly owned subsidiary (MalRoc). MalRoc's production cost is $1,700 per unit. MalRoc sells some output to independent distributors in the United States for $2,400. MalRoc also "sells" the dishwashers to Rocker U.S. who then sells them directly to commercial buyers at a price of $3,500. Rocker U.S. pays the shipping costs of $50 per unit it buys. According to trade data, distributors of dishwashers to restaurants in the U.S. normally earn a gross profit equal to 30% of selling price. MalRoc's main competitor in the Asian market sells dishwashers at an average 40% markup on cost to produce. Rocker U.S. allocates $530 per unit for other operating expenses to the dishwasher line. The average transactional net margin earned by distributors of dishwashers is 8%.

Rocker's US income tax rate is 21% while the Malaysian subsidiary's tax rate is 16%. Imports of dishwashers from Malaysia into the U.S. are subject to a 20% import tariff rate. Malaysia's dividend withholding tax rate is 10%. Rocker is planning on repatriating 100% of MalRoc's profits back to the U.S.

Required:

1.The management team for Rocker believes that the net margin method is the least applical of the methods recognized in OECD guidelines. Determine the possible transfer prices using the (a) comparable uncontrolled price model, (b) resale price model, (c) cost-plus pricing model, and (d) net transactional profit model.