2. (a) Assume that GSK (U.K.) sells generic (non-branded) pharmaceutical intermediates to GSK (U.S.). GSK (U.S.) sells them to other pharmaceutical companies with or without further processing. GSK (U.K.) sells these intermediates to other companies in the U.S. as well. However, the terms and conditions vary somewhat from those from its transfers to GSK (U.S.). The following additional information is available: Cost of the intermediates to GSK (U.K.) $22 million GSK (U.S.) revenues from sale of intermediates $50 million Average gross margin as a percentage of sales for U.S, drug manufacturers 40% Average gross margin as a percentage of cost of the intermediates to GSK (U.K.) 25% For each of the two independent situations below, compute (a) the transfer price, (b) GSK (U.K.) taxable income, and (c) GSK (U.S.) taxable income. Situation A: GSK (U.S.) does not process the intermediates before reselling them. (Resale price method) Situation B: GSK (U.S.) undertakes significant further processing of intermediates before they are sold. (Cost plus method) TIP: Transfer price is revenue of GSK (U.K.) and cost of sales of GSK (U.S.).