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Rocker U . S . manufactures low power, low water consuming commercial dishwashers in Malaysia, through their wholly owned subsidiary ( MalRoc ) . MalRoc
Rocker US manufactures low power, low water consuming commercial dishwashers in Malaysia, through their wholly owned subsidiary MalRoc MalRocs production cost is $ per unit. MalRoc uses excess capacity to sell output to independent distributors in the United States for $ MalRoc transfers substantially the same dishwashers to Rocker US who then sells them directly to commercial buyers at a price of $ Rocker US pays the shipping costs of $ per and is expecting to import units this year. According to trade data, distributors of commercial dishwashers in the US normally earn a gross profit equal to of selling price. MalRocs main competitor in the Asian market sells dishwashers at an average markup on cost to produce.
Rockers US income tax rate is while the Malaysian subsidiarys tax rate is Imports of dishwashers from Malaysia into the US are subject to a import tariff rate. Malaysias dividend withholding tax rate is Rocker is planning to repatriate of MalRocs profits back to the US
Required:
The management team for Rocker believes that the net margin method is the least applical of the methods recognized in OECD guidelines. As such, you have been asked to determine possible transfer prices using the a comparable uncontrolled price model, b resale price model, and c costplus pricing model.
Which of the possible transfer prices will maximize consolidated cash flow for the company? You will need to evaluate only the highest and lowest transfer prices from requirement above. Use the templates on the following pages as a guide.
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