Tech Friendly Computer, Inc., with headquarters in San Francisco, manufactures and sells a desktop computer. Tech Friendly has three divisions, each of which is located in a different country. Each division is run as a profit center. Information on each division follows: (Click the icon to view the data.) Requirements 1. Calculate the after-tax operating income per unit eamed by each division under the following transfer-pricing methods: (a) market price, (b) 150% of full cost, and (c) 300% of variable cost. (Income taxes are not included in the computation of the cost-based transfer prices.) 2. Which transfer pricing method(s) will maximize the after-tax operating income per unit of Tech Friendly Computer? 19 Requirement 1. Calculate the after-tax operating income per unit earned by each division under the following transfer-pricing methods: (a) market price. (b) 150% of full cost, and (c) 300% of variable cost. (Income taxes are not included in the computation of the cost-based transfer prices.) Begin with calculating the after-tax operating income for the China division under each method. Then complete the table for South Korea and the United States. (Convert all foreign currencies to U.S. dollars.) Method A Method B Method C China division $ 500 5 5 450 Division revenue per unit Cost per unit: : Division variable cost per unit 150 150 150 225 225 225 Division fixed cost per unit 375 375 375 Total division cost per unit Division operating income per unit 0 375 75 22.50 Income tax at 40% 0 112.50 0 0 262.50 Division net income ner unit 52.50 Data table China division: Variable cost = 900 yuan Fixed cost = 1,500 yuan South Korea division: Variable cost = 286,000 won Fixed cost = 407,000 won U.S. division Variable cost = $200 Fixed cost = $240 Chinese income tax rate on the China division's operating income: 40% South Korean income tax rate on the South Korea division's operating income: 20% U.S. income tax rate on the U.S. division's operating income: 40% Each desktop computer is sold to retail outlets in the United States for $2,800. Assume that the current foreign exchange rates are as follows: 6 yuan = $1 U.S. 1,100 won = $1 U.S. Both the China and the South Korea divisions sell part of their production under a private label. The China division sells the comparable memory/keyboard package used in each Tech Friendly desktop computer to a Chinese manufacturer for 3,000 yuan. The South Korea division sells the comparable desktop computer to a South Korean distributor for 1,540,000 won. Definition a. China division - manufactures memory devices and keyboards b. South Korea division - assembles desktop computers using locally manufactured parts, along with memory devices and keyboards from the China Division c. U.S. division - packages and distributes desktop computers Tech Friendly Computer, Inc., with headquarters in San Francisco, manufactures and sells a desktop computer. Tech Friendly has three divisions, each of which is located in a different country. Each division is run as a profit center. Information on each division follows: (Click the icon to view the data.) Requirements 1. Calculate the after-tax operating income per unit eamed by each division under the following transfer-pricing methods: (a) market price, (b) 150% of full cost, and (c) 300% of variable cost. (Income taxes are not included in the computation of the cost-based transfer prices.) 2. Which transfer pricing method(s) will maximize the after-tax operating income per unit of Tech Friendly Computer? 19 Requirement 1. Calculate the after-tax operating income per unit earned by each division under the following transfer-pricing methods: (a) market price. (b) 150% of full cost, and (c) 300% of variable cost. (Income taxes are not included in the computation of the cost-based transfer prices.) Begin with calculating the after-tax operating income for the China division under each method. Then complete the table for South Korea and the United States. (Convert all foreign currencies to U.S. dollars.) Method A Method B Method C China division $ 500 5 5 450 Division revenue per unit Cost per unit: : Division variable cost per unit 150 150 150 225 225 225 Division fixed cost per unit 375 375 375 Total division cost per unit Division operating income per unit 0 375 75 22.50 Income tax at 40% 0 112.50 0 0 262.50 Division net income ner unit 52.50 Data table China division: Variable cost = 900 yuan Fixed cost = 1,500 yuan South Korea division: Variable cost = 286,000 won Fixed cost = 407,000 won U.S. division Variable cost = $200 Fixed cost = $240 Chinese income tax rate on the China division's operating income: 40% South Korean income tax rate on the South Korea division's operating income: 20% U.S. income tax rate on the U.S. division's operating income: 40% Each desktop computer is sold to retail outlets in the United States for $2,800. Assume that the current foreign exchange rates are as follows: 6 yuan = $1 U.S. 1,100 won = $1 U.S. Both the China and the South Korea divisions sell part of their production under a private label. The China division sells the comparable memory/keyboard package used in each Tech Friendly desktop computer to a Chinese manufacturer for 3,000 yuan. The South Korea division sells the comparable desktop computer to a South Korean distributor for 1,540,000 won. Definition a. China division - manufactures memory devices and keyboards b. South Korea division - assembles desktop computers using locally manufactured parts, along with memory devices and keyboards from the China Division c. U.S. division - packages and distributes desktop computers