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Rocker U.S. manufactures low power, low water consuming commercial dishwashers in Malaysia, through their wholly owned subsidiary (MalRoc). MalRocs production cost is $1,650 per unit.
Rocker U.S. manufactures low power, low water consuming commercial dishwashers in Malaysia, through their wholly owned subsidiary (MalRoc). MalRocs 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. MalRocs main competitor in the Asian market sells dishwashers at an average 40% markup on cost to produce. Rockers US income tax rate is 21% while the Malaysian subsidiarys tax rate is 15%. Imports of dishwashers from Malaysia into the U.S. are subject to a 20% import tariff rate. Malaysias dividend withholding tax rate is 10%. Rocker is planning to repatriate 100% of MalRocs 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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