MODULE CASE Assignment

COMPLETE THIS CASE AND SUBMIT YOUR ANALYSIS INTO THE DROPBOX BEFORE THE DUE DATE.

Giant Company has two subsidiaries Alpha and Omega.  Both companies make identical  computer printers Information about the two subsidiaries for 2009 is as follows:

                                                    ALPHA                     OMEGA

Location                                        Brazil                       Chile

Sales Price (US dollars)                   $1000                      $1000

Production cost per unit                 $700                        $650

Production capacity                        20000units               30000 units

Current production/sales                10000 units              20000 units

Tax rate                                       40%                         40%

Part 1:  determine the after tax profit of Alpha and Omega.  How do you evaluate Alpha and Omega (cost, profit, or revenue center)

Giant Company has $40,000 in bonuses to distribute to the 2 divisions, how do you allocate the bonuses (note: you must distribute the entire $40,000)

In 2010  Giant purchases a third company called Gamma.  Gamma is located in Costa Rica and sells computer printers which it acquires from other manufacturers.  Information about Gamma is as follows:

Sales price ($)                   $1000

Purchase price of printers    $850

Sales                                9000 printers

Taxes                               40%

To spur exports, Brazil has passed a tax change such that sales from Brazilian companies to foreigners is only taxed at 10%.  Giant is convinced that the Costa Rican government will not object to a sales price to Gamma of up to $950. 

In 2010 Alpha and Omega will continue to have the same sales to their local customers

Required: for 2010

A) How do you supply gamma with printers?

B) What transfer price to you charge?

C) How do you evaluate alpha, gamma and omega (cost, revenue or profit center)

D) You now have $60,000 in bonuses to distribute to the 3 companies, how do you do it? 

It is now 2013 and the Brazilian tax break has expired so that all transactions involving Brazil are taxed at 40%.  In 2013 the cost of making a printer in Brazil is now $690 while the cost of making a printer in Chile is $660.  Alpha and Omega are still selling to their local customers at $1000 per printer. 

Required: for 2013

A) How do you supply gamma with printers?

B) What transfer price to you charge?

C) How do you evaluate alpha, gamma and omega (cost, revenue or profit center)

D) You now have $60,000 in bonuses to distribute to the 3 companies, how do you do it?