$23-20$ Multinational transfer pricing, effect $of$ alternative transfer$-$pricing methods, global income tax

minimization. People Able Computer, Inc., with headquarters $in$ San Francisco, manufactures and sells $a$

desktop computer. People Able has three divisions, each $of$ which $is$ located $in$ a different country:

$a.$ China division$-$manufactures memory devices and keyboards

$b.$ South Korea division$-$assembles desktop computers using locally manufactured parts, along with

memory devices and keyboards from the China division

$c.U.S.$ division$-$packages and distributes desktop computers

Each division $is$ run $as$ a profit center. The costs for the work done $in$ each division for a single desktop

computer are $as$ follows:

China division:

South Korea division:

$U.S.$ division:

Variable cost $=1,000$ yuan

Fixed cost $=1,800$ yuan

Variable cost $=360,000$ won

Fixed cost $=480,000$ won

Variable cost $=$$$100$

Fixed cost $=$$$200$

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: $28\%$

Each desktop computer $is$ sold $to$ retail outlets $in$ the United States for $$3,200.$ Assume that the current foreign

exchange rates are $as$ follows:

$8$ yuan $=$$$1U.S.$

$1,200$ won $=$$$1U.S.$

Both the China and the South Korea divisions sell part $of$ their production under a private label. The China

division sells the comparable memor$\frac{y}{k}$eyboard package used $in$ each People Able desktop computer $toa$

Chinese manufacturer for $3,600$ yuan. The South Korea division sells the comparable desktop computer $toa$

South Korean distributor for $1,560,000$ won.

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 $(c)300\%of$ variable cost. $(Income$ taxes are

not included $in$ the computation $of$ the cost$-$based transfer prices.$)$

Which transfer$-$pricing method$(s)$ will maximize the after$-$tax operating income per unit $of$ People Able

Computer?