Falmouth Kettle Company, a U.S. corporation, sells its products in the United States and Europe. During the current year, selling, general, and administrative (SG&A) expenses included:
Personnel department .............................. $500
Training department ................................. 350
President's salary .................................... 400
Sales manager's salary .............................. 200
Other general and administrative .................. 550
Total SG&A expenses ........................... $2,000
Falmouth had $12,000 of gross sales to U.S. customers and $3,000 of gross sales to European customers. Gross profit (sales minus cost of goods sold) from domestic sales was $3,000 and gross profit from foreign sales was $1,000. Apportion Falmouth's SG&A expenses to foreign source income using the following methods:
a. Gross sales
b. Gross income
c. If Falmouth wants to maximize its foreign tax credit limitation, which method produces the better outcome?