User Friendly Computer Inc., with headquarters in Nepean, Ontario, manufactures and sells a premium desktop computer system. User Friendly 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 internally manufactured parts and memory devices and keyboards from the China Division.
c. Canada Division€”packages and distributes desktop computer packages.
Each division is run as a profit centre. The costs for the work done in each division for
a single desktop computer system are as follows:

Each desktop computer package is sold to retail outlets in Canada for $3,200. Assume that the current foreign exchange rates are:
8 yuan = $1 Cdn.
1,200 won = $1 Cdn.
Both the China and South Korea Divisions sell part of their production under a private label. The China Divis ion sells the comparable memory/keyboard package used in each User Friendly desktop computer to a Chinese manufacturer for 3,600 yuan. The South Korea division sells the comparable desktop computer package to a South Korean distributor for 1,560,000 won.
REQUIRED
1. Calculate the after-tax operating income per unit earned by each division under each of 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.)
2. Which transfer-pricing method(s) will maximize the after-tax operating income per unit of User Friendly Computer Inc.?

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Variable costs 1,000 yuan Fixed costs 1,800 yuan Variable costs 360,000 won Fixed costs 480,000 won Variable costs 100 CAID Fixed costs200 CAD China Division South Korea Division Canada Division