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People Friendly Computer, Inc., with headquarters in San Francisco, manufactures and sells a desktop computer. People Friendly has three divisions, each of which is located in a different country. Each division is run as a profit center. Requirements 1. Calculate the after-tax operating income per unit earned by each division under the following transfer-pricing methods: (a) market price, (b) 200% of full cost, and (c) 350% 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 People Friendly Computer? Requirement 1. Calculate the after-tax operating income per unit earned by each division under the following transfer pricing methods: (a) market price, (b) 200% of full cost, and (c) 350% 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 Division revenue per unit Cost per unit: Division variable cost per unit Division fixed cost per unit Total division cost per unit Division operating income per unit Income tax at 40% Division net income per unit The costs for the work done in each division for a single desktop computer are as follows: China division: Variable cost = 900 yuan Fixed cost = 1,980 yuan South Korea division: Variable cost = 350,000 won Fixed cost = 470,000 won U.S. division Variable cost = $125 Fixed cost = $325 . 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: 30% Each desktop computer is sold to retail outlets in the United States for $3,800. Assume that the current foreign exchange rates are as follows: 9 yuan = $1 U.S. 1,000 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 People Friendly desktop computer to a Chinese manufacturer for 4,500 yuan. The South Korea division sells the comparable desktop computer to a South Korean distributor for 1,340,000 won

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