Problem

Ulsa Company has manufacturing subsidiaries in Malaysia and Malta. It is considering shipp...

Ulsa Company has manufacturing subsidiaries in Malaysia and Malta. It is considering shipping the subcomponents of Product Y to one or the other of these countries for final assembly. The final product will be sold in the country where it is assembled. Other information is as follows:

 

Malaysia

Malta

Average exchange rate

$1 = 4.30 ringgits

$1 = 0.40 lira

Import duty

5%

15%

Income tax rate

20%

10%

Unit selling price of Product Y

645 ringgits

70 liri

Price of subcomponent

215 ringgits

20 liri

Final assembly costs

200 ringgits

25 liri

Number of units to be sold

12,000 units

8,000 units

In both countries, the import duties are based on the value of the incoming goods in the receiving country’s currency.

Instructions

a. For each country, prepare an income statement on a per-unit basis denominated in that country’s currency.


b. In which country would the highest profit per unit (in dollars) be earned?


c. In which country would the highest total profit (in dollars) be earned?

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