Aston Electronics Corp. manufactures consumer electronic products in Japan. The variable and fixed production costs for producing each electronic circuit board is $275 and $50 respectively, and the company can sell its entire supply domestically for $420 each. The Japanese tax rate is 40%. Alternatively, Aston can ship the circuit boards to its division in Canada for further processing. Information about the Canadian product and the division’s operating environment are below: 

Selling price of final product $830 

hipping fees to Canada $50 

Additional variable costs $240 

Import duties levied on circuit board (to be paid by the Canadian division) 5% of transfer price Canadian tax rate 30% Aston’s management is exploring which transfer price more beneficial to the company as a whole. Assume that Japanese and Canadian tax authorities allow any transfer price suggested by Aston. Required: Show separate detailed calculations for the profit (or loss) that the Japanese and the Canadian divisions can make, 

if necessary, add diagrams to support your answers. 

(a) Assume that the transfer price is at full costs of Japanese division plus 20%. 

(b) Assume that there is no internal transfer between the Japanese and Canadian divisions. The Canadian division will obtain the circuit board in Canada for $370 and the Japanese division will sell the circuit board in the Japanese market. 

(c) If you were the head of the Canadian division, would you rather do business with the Japanese division or buy the circuit board locally in Canada? Why? Support your answer with all necessary calculations.

(d) If you were the director in the headquarter of Aston, would you recommend option (a) or (b) above? Explain. Support your answer with all necessary calculations.

Answer rating: 100% (QA)

Requirement A Japan Canada Selling price 390 830 Variable costs 275 240 Transfer pricecos... View the full answer