Covington Company (a manufacturer) and Howard Company (a retailer) are both foreign subsidiaries of Parent Company.Covington produces widgets at a cost of $20 each and sells them both to Howard and to unrelated customers.Howard purchases widgets from Covington and from unrelated suppliers and sells them for $100 each.The income tax rate in the countries Covington and Howard are located are 30% and 15%, respectively.

Calculate the after-tax profit for Parent Company, if Covington and Howard have negotiated a transfer price of $50 and if the Parent Company establishes a discretionary transfer price of $90.From a performance evaluation standpoint, which transfer price would Howard prefer?From a cost benefit standpoint, which method would the Parent Company prefer?