Akku Company imports die-cast parts from its German subsidiary that are used in the production of childrens toys. Per unit, part 169 costs the German subsidiary $1.00 to produce and $0.20 to ship to Akku Company. Akku Company uses part 169 to produce a toy airplane that it sells to U.S. toy stores for $4.50 per unit. The following tax rates apply:

German income tax. . . . . . . . . . 40%

U.S. income tax . . . . . . . . . . . . . . 35%

U.S. import duty . . . . . . . . . . . . . 1 0% of invoice price

a)Determine the total amount of taxes and duties paid to the U.S. and German governments if part 169 is sold to Akku Company at a price of $1.50 per unit.

b)Determine the total amount of taxes and duties paid to the U.S. and German governments if part 169 is sold to Akku Company at a price of $1.80 per unit

c)Explain why the results obtained in parts (a) and (b) differ.