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TCHEN PRO GmbH is a successful German-based ultinational provider of high-end integrated kitchen systems. TCHEN PRO purchases microwaves, ovens, refrigerators ., and sells them to household consumers worldwide. TCHEN PRO reports its financial statements in Euro (€). In rly 2020 KITCHEN PRO is considering an acquisition of a ngapore-based company, ACE, because it wishes to fully ntrol ACE's wafflemaker and frying pan production and sales. TCHEN PRO wants to include ACE's products in its egrated kitchen offerings. In particular, KITCHEN PRO ans to sell ACE's products exclusively as part of its kitchen stems, i.e. there shall be no external sales of ACE's afflemakers and frying pans following such an acquisition. O KITCHEN PRO's finance Singapore's corporate income tax rate is lower than that of Germany. She must determine the transfer price of ACE's (future, once acquired) internal Singapore Dollar (S$)- denominated sales of wafflemakers and frying pans to manager is aware that KITCHEN PRO. (i) Recommend a transfer pricing strategy that will maximize KITCHEN PRO's €-denominated Group profits. e transfer price from ACE's to KITCHEN PRO should be at the maximum price level, because the corporate income tax in Singapore is lower than in Germany, thus the profit in Singapore will be higher. The min price is at ACE's total cost. (ii) Discuss also any considerations i.e. how such transfer pricing policy might be affected by S$/€ currency fluctuations, particularly when the S$ depreciates (weakens) or appreciates (strengthens) against the €. hen the S$ weakens, the company KITCHEN PRO will be

TCHEN PRO GmbH is a successful German-based ultinational provider of high-end integrated kitchen systems. TCHEN PRO purchases microwaves, ovens, refrigerators ., and sells them to household consumers worldwide. TCHEN PRO reports its financial statements in Euro (€). In rly 2020 KITCHEN PRO is considering an acquisition of a ngapore-based company, ACE, because it wishes to fully ntrol ACE's wafflemaker and frying pan production and sales. TCHEN PRO wants to include ACE's products in its egrated kitchen offerings. In particular, KITCHEN PRO ans to sell ACE's products exclusively as part of its kitchen stems, i.e. there shall be no external sales of ACE's afflemakers and frying pans following such an acquisition. O KITCHEN PRO's finance Singapore's corporate income tax rate is lower than that of Germany. She must determine the transfer price of ACE's (future, once acquired) internal Singapore Dollar (S$)- denominated sales of wafflemakers and frying pans to manager is aware that KITCHEN PRO. (i) Recommend a transfer pricing strategy that will maximize KITCHEN PRO's €-denominated Group profits. e transfer price from ACE's to KITCHEN PRO should be at the maximum price level, because the corporate income tax in Singapore is lower than in Germany, thus the profit in Singapore will be higher. The min price is at ACE's total cost. (ii) Discuss also any considerations i.e. how such transfer pricing policy might be affected by S$/€ currency fluctuations, particularly when the S$ depreciates (weakens) or appreciates (strengthens) against the €. hen the S$ weakens, the company KITCHEN PRO will be

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question 1 - Transfer _pricing,_break-even and variance calculation KITCHEN PRO GmbH is a successful German-based multinational provider of high-end integrated kitchen systems. KITCHEN PRO purchases microwaves, ovens, refrigerators etc., and sells them to household consumers worldwide. KITCHEN PRO reports its financial statements in Euro (€). In early 2020 KITCHEN PRO is considering an acquisition of a Singapore-based company, ACE, because it wishes to fully control ACE's wafflemaker and frying pan production and sales. KITCHEN PRO wants to include ACE's products in its integrated kitchen offerings. In particular, KITCHEN PRO plans to sell ACE’s products exclusively as part of its kitchen systems, i.e. there shall be no external sales of ACE's wafflemakers and frying pans following such an acquisition. KITCHEN PRO’s finance manager is aware that (a) Singapore's corporate income tax rate is lower than that of Germany. She must determine the transfer price of ACE's (future, once acquired) internal Singapore Dollar (S$)- denominated sales of wafflemakers and frying pans to KITCHEN PRO. (i) Recommend a transfer pricing strategy that will maximize KITCHEN PRO’s €-denominated Group profits. The transfer price from ACE's to KITCHEN PRO should be at the maximum price level, because the corporate income tax in Singapore is lower than in Germany, thus the profit in Singapore will be higher. The min price is at ACE's total cost. (ii) Discuss also any considerations i.e. how such transfer pricing policy might be affected by S$/€ currency fluctuations, particularly when (weakens) or appreciates (strengthens) against the €. the S$ depreciates When the S$ weakens, the company KITCHEN PRO will be alble to buy more and their revenure goes up, thus their BEP is at a lower point. The recommondation is that the tranfer price should be low. If the S$ appriciates, there will be less profits in Germany for KITCHEN PRO, thus the tranfer price should be set to the maximum. Which leads to increased Profits in Singapore.
Transcribed Image Text:Question 1 - Transfer _pricing,_break-even and variance calculation KITCHEN PRO GmbH is a successful German-based multinational provider of high-end integrated kitchen systems. KITCHEN PRO purchases microwaves, ovens, refrigerators etc., and sells them to household consumers worldwide. KITCHEN PRO reports its financial statements in Euro (€). In early 2020 KITCHEN PRO is considering an acquisition of a Singapore-based company, ACE, because it wishes to fully control ACE's wafflemaker and frying pan production and sales. KITCHEN PRO wants to include ACE's products in its integrated kitchen offerings. In particular, KITCHEN PRO plans to sell ACE’s products exclusively as part of its kitchen systems, i.e. there shall be no external sales of ACE's wafflemakers and frying pans following such an acquisition. KITCHEN PRO’s finance manager is aware that (a) Singapore's corporate income tax rate is lower than that of Germany. She must determine the transfer price of ACE's (future, once acquired) internal Singapore Dollar (S$)- denominated sales of wafflemakers and frying pans to KITCHEN PRO. (i) Recommend a transfer pricing strategy that will maximize KITCHEN PRO’s €-denominated Group profits. The transfer price from ACE's to KITCHEN PRO should be at the maximum price level, because the corporate income tax in Singapore is lower than in Germany, thus the profit in Singapore will be higher. The min price is at ACE's total cost. (ii) Discuss also any considerations i.e. how such transfer pricing policy might be affected by S$/€ currency fluctuations, particularly when (weakens) or appreciates (strengthens) against the €. the S$ depreciates When the S$ weakens, the company KITCHEN PRO will be alble to buy more and their revenure goes up, thus their BEP is at a lower point. The recommondation is that the tranfer price should be low. If the S$ appriciates, there will be less profits in Germany for KITCHEN PRO, thus the tranfer price should be set to the maximum. Which leads to increased Profits in Singapore.
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