Case 12-2 global electronics company

Global Electronics Company (GEC), a U.S. taxpayers, manufactures laser guitars in its Malaysian operation (LG-Malay) at a production cost of $120 per unit. LG- Malay guitars are sold to two customers in the United States – Electronic Super-stores (a GEC wholly owned subsidary) and Walmart (an unaffiliated customer). The cost to transport the guitars to the United States is $15 per unit and is paid by LG-Malay. Other Malaysian manufacturers of laser guitars sell to customers in the United States at a markup in total cost (production plus transportation) of 40 percent. LG-malay sells guitars to Walmart at a landed price of $180 per unit (LG-Malaypays transportation costs). Walmart pays applicable U.S. import duties of 20 pecent on its purchases of laser guiatrs. Electronic Superstones also pays import duties on its purchases from LG-malay. Consistent with inductry practice, Walmart places a 50 percent markup on laser guitars and sells them at a retail price of $324 per unit. Electronic Superstones sells LG-Malay guitars at a retail price of $333 per unit.

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