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Determine Optimal Transfer Price
Given data
Malaykey Data
Production cost	$120.00
Transportion cost	$10.00
Wholesale price to Targetmart	$200.00
Wholesale price to Music Superstore (transfer price)	?
Other Malaysian Manufacturers' Sales of Keyboards to United States
Markup on total cost	60%
Targetmart Data
Markup on total cost	50%
Retail price to customers	$360.00
Music Superstore Data
Retail price to customers	$342.00
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%
Required:
Note: Use cells A2 to B26 from the given information to complete this question.
1. Determine three possible prices for the sale of keyboards from Malaykey to Music Superstore
(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
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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