Reference no: EM132430389

Question - Life Good Electronics Company, an Australian firm, operates a subsidiary in Singapore (Singapore Electronics) which produces guitars. The following information has been provided to you:

1. The production cost of $120 per unit based on operations at full capacity of 10,000 units. Singapore Electronics sells the guitars to two customers in Australia-Australian Electronics (a fully owned subsidiary of Life Good Electronics Company) and Target Australia (an independent customer).

2. Operating expenses are $15 per unit in Australia and $10 in Singapore.

3. The cost to transport the guitars to Australia is $15 per unit and is paid by Singapore Electronics.

4. Other Singaporean manufacturers of guitars sell them to customers in Australia at a mark-up on total cost of 20 percent.

5. Target and Australian Electronics pays applicable Australian import duties on its purchases from Singapore Electronics.

6. Target places a reasonable mark-up on guitars and sells them at a retail price of $324 per unit. Australian Electronics sells the guitars at a retail price of $333 per unit.

7. In Australia import duty is 20%. Import duties are deductible for tax purposes.

8. In Australia income tax rate is 35% and in Singapore income tax rate is 15%.

Required - Calculate net profit after tax when the transfer price is based on total cost plus mark-up of 20 % assuming all units produced are purchased solely by Australian Electronics?