Allocating Foreign Sales Overdale Company has subsidiaries located in many countries. While each subsidiary produces a unique set of products, they all carry a full line of Overdale specialty products. Overdale has just completed an agreement to deliver $950,000 worth of products to a company in central Europe. Because of Overdale’s broad geographic diversification, the products can be delivered by subsidiaries in any of three countries or by the parent company. The tax laws and financial reporting procedures are somewhat different in each of the countries and the cost of delivering the products is also somewhat different from each country.

a. Why might Overdale consider giving a 2 percent discount if the product is shipped from the United States and the transaction is denominated in dollars?

b. What factors should Overdale take into consideration in deciding which of the subsidiaries should make the sale and receive payment?

c. If the exchange rate of the purchaser’s country is very stable against the U.S. dollar, does it matter which subidiary is used? Explain.

d. How might the percentage ownership of the foreign subsidiaries affect the decision as to which subsidiary to use?