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 coun- try’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?