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Canada's Tires is a division of the Wheels To Go Company. Canada's Tires produces bicycle tires in its automated plant in Canada. Fixed costs per tire are $5, and variable costs are $2 per tire. The tires are shipped to Wheels To Go's plant in Africa where bicycles are assembled and sold locally at a sales price of $50 each. Fixed costs to make the bicycles are $10 per unit and variable costs per unit are $15 plus the cost of the tires. Wheels To Go has a tax rate of 30% in Canada, and 20% in Africa.
Instructions
Problem a) Calculate the after tax income for Canada's Tires, the African assembly division, and the company as a whole if 100,000 tires are transferred at Canada's Tires' full cost. Assume the 100,000 tires are all used to produce 50,000 bicycles.
Problem b) Calculate the after tax income for Canada's Tires, the African assembly division, and the company as a whole if 100,000 tires are transferred at 110% of Canada's Tires' full cost. Assume the 100,000 tires are all used to produce 50,000 bicycles.
Problem c) What would be your recommendation to Wheels To Go?
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