Question

Crain Company has a manufacturing subsidiary in Singapore that produces high-end exercise equipment for U.S consumers. The manufacturing subsidiary has total manufacturing costs of $1,460,000, plus general and administrative expenses of $346,000. The manufacturing unit sells the equipment for $2,460,000 to the U.S. marketing subsidiary, which sells it to the final consumer for an aggregate of $3,460,000. The sales subsidiary has total marketing. general, and administrative costs of $196,000. Assume that Singapore has a corporate tax rate of 33 % and that the U.S. tax rate is 46%. Assume that no tax treaties or other special tax treatments apply. Required: What is the effect on Crain Company's total corporate-level taxes if the manufacturing subsidiary raises its price to the sales subsidiary by 20 % ? ( Do not round intermediate calculations. Input all amounts as positive values.) Total from Subsidiaries Income prior to increase in transfer price Revenues 5,920,000 Direct costs 3,920,000 542,000 Other costs Profit before tax 1,458,000 Tax 587,000 Profit after tax 871,000 Income after increase in transfer price 6,412,000 Revenues Direct costs 4,412,000 Other costs 542,000 Profit before tax 1,458,000 Tax 579,264 Profit after tax 878,736 Difference in after-tax profit 7,736

Answer 1

Pagemto ANwR companyb total coorpo.orde leu el Cotain AShat ce ctecf tous dhe manubaconing ubatdkaryvases paice Pabriclany bs0 thhe ales Prfor to ncorease î» travben prfce Revenues Reenue fotalfrom oubicianies = Sngapore manufas ing ngiony US 460,000 3460,000 5920,000 rc cor total fom ubaidiay - 460000 46Or0O0 B9a0i0o0 - offier cast tal thom baidicny 346000 t 96000 54000 bebore tar total fo Abridiy 5900,000 390100+ 51200) 1458000

6ngepore anuadg 337 x a460ro001460,000-346000 O 33 X G54000 Q15880 460000-196000 neling rabidianry lax 46/ X 34 60,000 O.46 X 804000 369840 Ta x Total bvem ubpidianies S15820 369840 Pof abter fa toal fome Aub ridiary 585660 1458000 8234 0 Sngopore manugocl ingabnickay proft adtor tar 65y000 2158a0 438180 aboiday profit fen dax 369840 434160 S0400o Profit ahten tar A 872340 438180 434160

2 «NO Theome afte to incaease trane Revenues Sngpore monuhachsing subidlany 2460/000+ (ачволооо х о-20) 2460000 t 492000 - 4 952000 ling abridiaoy US 3460,00 0 Total from ubndianjes 952000 t460,000 $6412000 Oireet to Sngopoe manutacaing subaidkaog ling rabaidicay 4 601000 (a 60,00K0 20 Us 0460,000 t 295000 0 Total from Suhsdianies 1460000 t2952000 44000

ngpon manaaing uhidioy f34 6000 ding Aubadiany Total brormuhavies 196000 396000 196000 542000 Rofi tore fax oigapore manubacling ubardang 295d000- 1960,000 - 346000 4t4 6000 helling tsubsid'ay S 3460,000 Q95d000 - 196000 312000 Total from ubaidiany 1458000 { i46000 f 312000 strgtore mauading aboidony Aeling aubaidiany 37818cd 14350 310000 x 0.46 Total from subsdiani es 38180 143 5a0

NO Pft affer tar sgaper manuaclng auhsīdiany 38180 { {46000 68a0 elling anidiany 168480 3I2000 43520 Total from bsidiawies 936300 - 7678200 + 168480 Difference abton tax proft G 3960 936300 otal from pubsidanie income príoi to intfease Reverue 5001000 Direct Cont 3920 000 other conts 54a000 Peaofit beorex 4 1458000 585660 Tax Rofit atter ta 872340 Reverue 4 641000 Direct cont ofher conts 54a000 Pofit bebere tax 458000 45100 936300 $63960 Rofil afea tax Difference in after tar profi