Orient Computers produces desktop and laptop computers for home and business use. The company has its plant at Whitsett, North Carolina in the United States. However, the company has sales divisions worldwide. One of these sales divisions is located in Dresden, Germany. Assume that the U.S. income tax rate is 25%, the German income tax rate is 40%, and a 3% import duty is imposed on computer hardware brought into Germany. 

One product produced in Whitsett and shipped to Germany is gaming laptops. The variable cost of production is $900 per unit and the fully allocated cost is $1,400 per unit.

1. Suppose the German and U.S. governments allow either the variable cost or fully allocated cost to be used as a transfer price. Which price should Orient Computers choose to minimize the total of income taxes and import duties? Compute the amount the company saves if it uses your suggested transfer price instead of the alternative. Assume import duties are not deductible for tax purposes. 

2. Suppose the German government decreased the income tax rate to 30% and increased the duty on computer hardware to 10%. Repeat number 1, using these new rates.