| Determine Optimal Transfer Price | | | | |
| Given data | | | | |
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| Malaykey Data | | | | |
| Production cost | $120.00 | | | |
| Transportion cost | $10.00 | | | |
| Wholesale price to Targetmart | $200.00 | | | |
| Wholesale price to Music Superstore (transfer price) | ? | | | |
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| Other Malaysian Manufacturers' Sales of Keyboards to United States | | | | |
| Markup on total cost | 60% | | | |
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| Targetmart Data | | | | |
| Markup on total cost | 50% | | | |
| Retail price to customers | $360.00 | | | |
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| Music Superstore Data | | | | |
| Retail price to customers | $342.00 | | | |
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| Tax Rates and Import Duties | | | | |
| Malaysia corporate income tax rate | 30% | | | |
| Malaysia non-treaty withholding tax rate on dividends | 25% | | | |
| U.S. corporate income tax rate | 21% | | | |
| U.S. ad valorem import duty | 20% | | | |
| U.S.-Malaysia tax treaty withholding tax rate on dividends | 5% | | | |
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| Required: | | |
| Note: Use cells A2 to B26 from the given information to complete this question. | | | | |
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| 1. Determine three possible prices for the sale of keyboards from Malaykey to Music Superstore | | | | |
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| (a) Comparable Uncontrolled Price Method | | | | |
| Wholesale price to TargetMart | | $200.00 | | |
| Transfer price | | | $200.00 | |
| | | | | |
| (b) Resale Price Method | | | | |
| Music Superstore retail price to customers | | $342.00 | | |
| less: reasonable retailer markup on total cost | 50% | | | |
| less: U.S. import duty | 20% | | | |
| Transfer price | | | | |
| | | | | |
| (c ) Cost-Plus Method | | | | |
| Malaykey production cost | | $120.00 | | |
| Malaykey transportation cost | | $10.00 | | |
| plus: reasonable manufacturer markup on total cost | 60% | | | |
| Transfer price | | | | |
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| 2. Determine the transfer price that maximizes Global Sound Company's consolidated net income (after-tax) per unit | | | | |
| | | | | |
| Comparable Uncontrolled Price Method | | Malaykey | Music Superstore | GSC Consolidated |
| Sales Price (transfer price) | | | | |
| Less: Cost of Sales | | | | |
| Less: Transportation Cost | | 10.00 | | |
| Gross Profit | | | | |
| Less: U.S. Import Duty | 20% | | | |
| Pre-tax Income | | | | |
| Less: Malaysian Income Tax | 30% | | | |
| Less: U.S. Income Tax | 21% | | | |
| Net Income | | | | |
| | | | | |
| Resale Price Method | | Malaykey | Music Superstore | GSC Consolidated |
| Sales Price (transfer price) | | | | |
| Less: Cost of Sales | | | | |
| Less: Transportation Cost | | | | |
| Gross Profit | | | | |
| Less: U.S. Import Duty | 20% | | | |
| Pre-tax Income | | | | |
| Less: Malaysian Income Tax | 30% | | | |
| Less: U.S. Income Tax | 21% | | | |
| Net Income | | | | |
| | | | | |
| Cost Plus Method | | Malaykey | Music Superstore | GSC Consolidated |
| Sales Price (transfer price) | | | | |
| Less: Cost of Sales | | | | |
| Less: Transportation Cost | | | | |
| Gross Profit | | | | |
| Less: U.S. Import Duty | 20% | | | |
| Pre-tax Income | | | | |
| Less: Malaysian Income Tax | 30% | | | |
| Less: U.S. Income Tax | 21% | | | |
| Net Income | | | | |
| | | | | |
| 3. Determine the transfer price that maximizes net cash flow (after-tax) per unit to Global Sound Company - 100% of net income repatriated as a dividend - no tax treaty |
| | | | | |
| | | Transfer Price |
| $200.00 | $0.00 | $0.00 |
| Malaykey Profit | | | | |
| Less: Malaysian Withholding Tax | 25% | | | |
| Net Dividend to Global Sound Company | | | | |
| Plus: Music Superstore Net Income | | | | |
| Global Sound Company Net Cash Flow (after-tax) | | | | |
| | | | | |
| 4. Determine the transfer price that maximizes net cash flow (after-tax) per unit to Global Sound Company - 100% of net income repatriated as a dividend - tax treaty withholding rate |
| | | | | |
| | | Transfer Price |
| $200.00 | $0.00 | $0.00 |
| Malaykey Profit | | | | |
| Less: Malaysian Withholding Tax | 5% | | | |
| Net Dividend to Global Sound Company | | | | |
| Plus: Music Superstore Net Income | | | | |
| Global Sound Company Net Cash Flow (after-tax) | | | | |
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