Giant Company has two subsidiaries Alpha and Omega. Both companies make identical computer printers Information about the two subsidiaries for 2009 is as follows:
ALPHAOMEGA
LocationBrazilChile
Sales Price (US dollars)$1000$1000
Production cost per unit$700$650
Production capacity20000units30000 units
Current production/sales10000 units20000 units
Tax rate40%40%
Part 1: determine the after tax profit of Alpha and Omega. How do you evaluate Alpha and Omega (cost, profit, or revenue center)
Giant Company has $40,000 in bonuses to distribute to the 2 divisions, how do you allocate the bonuses (note: you must distribute the entire $40,000)
In 2010 Giant purchases a third company called Gamma. Gamma is located in Costa Rica and sells computer printers which it acquires from other manufacturers. Information about Gamma is as follows:
Sales price ($) $1000
Purchase price of printers $850
Sales 9000 printers
Taxes 40%
To spur exports, Brazil has passed a tax change such that sales from Brazilian companies to foreigners is only taxed at 10%. Giant is convinced that the Costa Rican government will not object to a sales price to Gamma of up to $950.
In 2010 Alpha and Omega will continue to have the same sales to their local customers
REQUIRED: FOR 2010
HOW DO YOU SUPPLY GAMMA WITH PRINTERS?
WHAT TRANSFER PRICE TO YOU CHARGE?
HOW DO YOU EVALUATE ALPHA, GAMMA AND OMEGA (COST, REVENUE OR PROFIT CENTER)
YOU NOW HAVE $60,000 IN BONUSES TO DISTRIBUTE TO THE 3 COMPANIES, HOW DO YOU DO IT?
It is now 2013 and the Brazilian tax break has expired so that all transactions involving Brazil are taxed at 40%. In 2013 the cost of making a printer in Brazil is now $690 while the cost of making a printer in Chile is $660. Alpha and Omega are still selling to their local customers at $1000 per printer.
REQUIRED: FOR 2013
HOW DO YOU SUPPLY GAMMA WITH PRINTERS?
WHAT TRANSFER PRICE TO YOU CHARGE?
HOW DO YOU EVALUATE ALPHA, GAMMA AND OMEGA (COST, REVENUE OR PROFIT CENTER)
YOU NOW HAVE $60,000 IN BONUSES TO DISTRIBUTE TO THE 3 COMPANIES, HOW DO YOU DO IT?