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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