Hendricks Ltd

Essay

Hendricks Ltd.of Calgary manufactures and sells computers.The Manufacturing Division is located in China and transfers 75% of its output to the Assembly Division in the Philippines.The balance of the product is sold in the local market at 2,100 yuan/unit.The Philippines division sells 20% of its output in the local market at 31,500 pesos/unit, with the balance shipped to Calgary.The Calgary operation packages the units and sells the final product at $1,900 Canadian per unit.The following budget data are available:
Tax rates are 45% in China, 20% in the Philippines and 40% in Canada.Income taxes are not included in the calculation of cost-based transfer prices.Assume that Hendricks does not pay Canadian tax on amounts already taxed in foreign jurisdictions.Take each calculation to 2 decimal places.Required:
The company has determined that it may transfer units at 250% of variable cost or at market and comply with all existing tax legislation.Which transfer pricing method should the company pursue? Support your recommendation with appropriate calculations.