DigiControl International Inc. manufactures robotic controllers in Division A, a country with a 30% income tax rate, and transfers them to Division B, a country with a 40% income tax. An import duty of 15% of the transfer price is paid on all imported products. The import duty is not deductible in computing taxable income. The controllers full cost is $1,800 and variable cost is $1,000; they are sold by Division B for $2,200. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price.

Part 1: Analyze the effect of both full-cost and variable-cost transfer pricing methods on cash flows using a spreadsheet program such as Excel.

Part 2: Make your recommendation as to how the organization should proceed, being sure to justify your recommendation with examples form this weeks Resources, and/or additional research. Complete this aspect of the Assignment by using a word processing program such as Word.