Rocker U$.$S$.$ manufactures low power, low water consuming commercial dishwashers in Malaysia, through their wholly owned subsidiary $($MalRoc$).$ MalRoc$$s production cost is $$1,650$ per unit. MalRoc uses excess capacity to sell output to independent distributors in the United States for $$2,300.$ MalRoc transfers substantially the same dishwashers to Rocker U$.$S$.$ who then sells them directly to commercial buyers at a price of $$3,500.$ Rocker U$.$S$.$ pays the shipping costs of $$50$ per and is expecting to import $6,000$ units this year. According to trade data, distributors of commercial dishwashers in the U$.$S$.$ normally earn a gross profit equal to $30\%$ of selling price. MalRoc$$s main competitor in the Asian market sells dishwashers at an average $40\%$ markup on cost to produce.

Rocker$$s US income tax rate is $21\%$ while the Malaysian subsidiary$$s tax rate is $15\%.$ Imports of dishwashers from Malaysia into the U$.$S$.$ are subject to a $20\%$ import tariff rate. Malaysia$$s dividend withholding tax rate is $10\%.$ Rocker is planning to repatriate $100\%$ of MalRoc$$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. As such, you have been asked to determine possible transfer prices using the $($a$)$ comparable uncontrolled price model, $($b$)$ resale price model, and $($c$)$ cost$-$plus pricing model.

$2.$ 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 $1$ above. Use the templates on the following pages as a guide.

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TRANSFER PRICING ANALYSIS TEMPLATE $$ US Operation Importing

Foreign Operation US Operation Consolidated

Sales

Cost of sales: Product cost

Transportation cost

Import duty

Gross profit

Less: Other costs

Taxable income

Less: Income tax

After$-$tax income

Less: Withholding Taxes

Net Cash Flow $($per unit$)$

Net Cash Flow $($total$)$

INPUT VALUES

Retail price

Transfer price TP Basis:

Cost to produce

Transportation cost

Transportation cost paid by

Foreign Source other costs

US other costs

Volume

Expected $\%$ Dividend Repatriation

Import Duty

US income tax rate

Foreign income tax rate

Foreign withholding tax rate

$$

TRANSFER PRICING ANALYSIS TEMPLATE $$ US Operation Importing

Foreign Operation US Operation Consolidated

Sales

Cost of sales: Product cost

Transportation cost

Import duty

Gross profit

Less: Other costs

Taxable income

Less: Income tax

After$-$tax income

Less: Withholding Taxes

Net Cash Flow $($per unit$)$

Net Cash Flow $($total$)$

INPUT VALUES

Retail price

Transfer price TP Basis:

Cost to produce

Transportation cost

Transportation cost paid by

Foreign Source other costs

US other costs

Volume

Expected $\%$ Dividend Repatriation

Import Duty

US income tax rate

Foreign income tax rate

Foreign withholding tax rate