Answer Happy

Chinglish Dirk (B). Chinglish Dirk Company (Hong Kong) exports razor blades to its wholly owned parent company, Torrington Edge (Great Britain). Hong Kong tax rates are 16% and British tax rates are 34%. The markup was 15% and the sales volume was 3,000 units. Chinglish calculates its profit per container as follows (all values in British pounds): Corporate management of Torrington Edge wishes to reposition profit in Hong Kong. It is, however, facing two constraints. First, the final sales price in Great Britain must be £20,000 or less to remain competitive. Secondly, the British tax authorities in working with Torrington Edge's cost accounting staff has established a maximum transfer price allowed (from Hong Kong) of £17,800. Prove that the optimal combination of markups is a 25.0% markup at Chinglish and an 8.1% markup in Torrington Edge. What is the impact of this repositioning on consolidated after-tax profits and total tax payments?
Chinglish Dirk Consolidated Constructing Transfer (Sales) Price per Unit (British pounds) Torrington Edge (British pounds) 16,100 (British pounds) Direct costs £ الم 10,000 £ Overhead 4,000 1,000 Total costs £ 14,000 £ 17,100 2,100 2,565 Desired markup Transfer price (sales price) £ 16,100 £ 19,665 Income Statement Sales price £ 48,300,000 £ (42,000,000) Less total costs Taxable income £ 6,300,000 £ 58,995,000 (51,300,000) 7,695,000 (2,616,300) £ 5,078,700 £ Less taxes (1,008,000) 3,624,300 Profit, after-tax £ 5,292,000 £ 10,370,700
Calculate the profits of Chinglish Dirk and Torrington Edge, and the consolidated results of both, if the markup at Chinglish was increased to 25.0% and the markup at Torrington was reduced to 8.1% in the following table: (Round to the nearest cent.) Constructing Transfer Chinglish Dirk Consolidated Torrington Edge (British pounds) (Sales) Price per Unit (British pounds) (British pounds) Direct costs £ 10,000 £ Overhead 4,000 1,000 Total costs £ 14,000 £ Desired markup Transfer price (sales price) £ Income Statement Sales price £ £ Less total costs Taxable income £ Less taxes £ Profit, after-tax £ £ CH £