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User Friendly Computer, Inc., with headquarters in San Francisco, manufactures and sells a desktop computer. User Friendly has three divisions, each of which is located
User Friendly Computer, Inc., with headquarters in San Francisco, manufactures and sells a desktop computer. User 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 earned by each division under the following transfer-pricing methods: (a) market price, (b) 250% 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 User Friendly Computer? computation of the cost-based transfer prices.) Data table The costs for the work done in each division for a single desktop computer are as follows: China division: South Korea division: U.S. division 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 VariablecostFixedcostVariablecostFixedcostVariablecostFixedcost=1,100yuan=2,100yuan=392,000won=532,000won=$225=$280 - Chinese income tax rate on the China division's operating income: 30% - 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 $4,200. Assume that the current foreign exchange rates are as follows: 10yuan=$1U.S.1,400won=$1U.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 User Friendly desktop computer to a Chinese manufacturer for 3,300 yuan. The South Korea division sells the comparable desktop computer to a South Korean distributor for 1,680,000 won
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