Chinglish Dirk (C). Chinglish Dirk Company (Hong Kong) exports razor blades to its wholly owned parent...

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Chinglish Dirk (C). 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 33%. The markup was 15% and the sales volume was 2,000 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. Not to leave any potential tax repositioning opportunities unexplored, Torrington Edge wants to combine the components described above with a redistribution of overhead costs If overhead costs could be reallocated between the two units, but still total £5,000 per unit, and maintain a minimum of £1,750 per unit in Hong Kong, prove that the optimal combination of markups is a 35.0% markup at Chinglish and an 4.64% markup in Torrington Edge. What is the impact of this repositioning on consolidated after-tax profits and total tax payments? Calculate the profits of Chinglish Dirk and Tomrington Edge, and the consolidated results of both, if the markup at Chinglish was increased to 35.0% and the markup at Tornington was reduced to 4.64% in the following table: (Round to the nearest British pound.) Question Viewer Constructing Transfer (Sales) Price per Unit Direct costs Overhead Total costs Desired markup Transfer price (sales price) Income Statement Sales price Less total costs Taxable income Less taxes Profit, wher-tax £ E £ 33 Chinglish Dirk (British pounds) 12 10,000 £ 1,750 11,750 £ £ £ E Torrington Edge (British pounds) 3,250 Consolidated (British pounds) (Click on the following icon in order to copy its contents into a spreadsheet.) Constructing Transfer Chinglish Dirk (Sales) Price per Unit (British pounds) Direct costs Overhead Total costs Desired markup Transfer price (sales price) Income Statement Sales price Less total costs Taxable income Less taxes Profit, after-tax £ £ £ £ £ £ 10,000 £ 4,000 14,000 £ 2,100 16,100 £ 32,200,000 £ (28,000,000) 4,200,000 £ (672,000) 3,528,000 £ Torrington Edge (British pounds) 16,100 1,000 17,100 2,565 19,665 39,330,000 (34,200,000) 5,130,000 (1,692,900) £ 3,437,100 £ Consolidated (British pounds) 2,364,900 6,965,100 Chinglish Dirk (C). 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 33%. The markup was 15% and the sales volume was 2,000 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. Not to leave any potential tax repositioning opportunities unexplored, Torrington Edge wants to combine the components described above with a redistribution of overhead costs If overhead costs could be reallocated between the two units, but still total £5,000 per unit, and maintain a minimum of £1,750 per unit in Hong Kong, prove that the optimal combination of markups is a 35.0% markup at Chinglish and an 4.64% markup in Torrington Edge. What is the impact of this repositioning on consolidated after-tax profits and total tax payments? Calculate the profits of Chinglish Dirk and Tomrington Edge, and the consolidated results of both, if the markup at Chinglish was increased to 35.0% and the markup at Tornington was reduced to 4.64% in the following table: (Round to the nearest British pound.) Question Viewer Constructing Transfer (Sales) Price per Unit Direct costs Overhead Total costs Desired markup Transfer price (sales price) Income Statement Sales price Less total costs Taxable income Less taxes Profit, wher-tax £ E £ 33 Chinglish Dirk (British pounds) 12 10,000 £ 1,750 11,750 £ £ £ E Torrington Edge (British pounds) 3,250 Consolidated (British pounds) (Click on the following icon in order to copy its contents into a spreadsheet.) Constructing Transfer Chinglish Dirk (Sales) Price per Unit (British pounds) Direct costs Overhead Total costs Desired markup Transfer price (sales price) Income Statement Sales price Less total costs Taxable income Less taxes Profit, after-tax £ £ £ £ £ £ 10,000 £ 4,000 14,000 £ 2,100 16,100 £ 32,200,000 £ (28,000,000) 4,200,000 £ (672,000) 3,528,000 £ Torrington Edge (British pounds) 16,100 1,000 17,100 2,565 19,665 39,330,000 (34,200,000) 5,130,000 (1,692,900) £ 3,437,100 £ Consolidated (British pounds) 2,364,900 6,965,100