Problem

Exchange Rates and Product DecisionsHaliday Company has manufacturing subsidiaries in Thai...

Exchange Rates and Product Decisions

Haliday Company has manufacturing subsidiaries in Thailand and Mexico. It is considering ship­ping the subcomponents of Product X 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:

 

Thailand

Mexico

Average exchange rate

$1 = 32.5 pesos

$1 =12 pesos

Import duty

4%

12%

Income tax rate

30%

28%

Unit selling price of Product X

5055 bhats

2250 pesos

Price of subcomponent

1444 bhats

540 pesos

Final assembly costs

1805 bhats

900 pesos

Number of units to be sold

14,000 units

10,000 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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