I Transfer Pricing Toro, a domestic corporation, manufactures and sells lawn mowers in the Unites States and abroad. Foreign sales are made through Mahindra, a wholly owned foreign corporation from India. Toro's lawn mowers cost S6000 to manufacture and $100 to market, and sell for $1,000 abroad. Regardless of the transfer price used for sales by Toro to Mahindra, the combined income from a foreign sale is S300 per lawn mower [S1,000 final sales price - $600 manufacturing cost - S100 selling expense]. However, transfer prices do affect the allocation of that combined profit between Toro and Mahindra. At one extreme, a transfer price of S600 would allocate the combined profit of $300 entirely to Mahindra, as follows Effect on Toro Production cost $600 Effect on Mahindra Transaction Manufacture lawn mowers Cost of sales S600 Selling expense $100 Sales revenue S1,000 Net profit $300 Controlled sale Sales revenue S600 Foreign selling activities Sale to foreign customer Net profit $0 At the other extreme, a transfer price of $900 would allocate the combined profit of $300 entirely to Toro, as follows. Effect on Toro Production cost $600 Transaction Manufacture lawn mowers Controlled sale Foreign selling activities Sale to foreign customer Effect on Mahindra Cost of sales $900 Selling expense $100 Sales revenue= S1,000 Net profit $0 Sales revenue S900 Net profit $300 The facts are the same as above. Assume that the U.S. tax rate is 25% and the applicable Indian (foreign) tax rate is 35%. Based on this table, answer the following questions: (SHOW ALL CALCULATIONS TO RECEIVE CREDIT - NOT JUST THE FINAL ANSWERS) A. Determine what prices will Toro use in each markets? B. Given the tax structures, how should Joh Deere allocate its sales, revenues and profits to maximize after-tax profits? Why? Explain I Transfer Pricing Toro, a domestic corporation, manufactures and sells lawn mowers in the Unites States and abroad. Foreign sales are made through Mahindra, a wholly owned foreign corporation from India. Toro's lawn mowers cost S6000 to manufacture and $100 to market, and sell for $1,000 abroad. Regardless of the transfer price used for sales by Toro to Mahindra, the combined income from a foreign sale is S300 per lawn mower [S1,000 final sales price - $600 manufacturing cost - S100 selling expense]. However, transfer prices do affect the allocation of that combined profit between Toro and Mahindra. At one extreme, a transfer price of S600 would allocate the combined profit of $300 entirely to Mahindra, as follows Effect on Toro Production cost $600 Effect on Mahindra Transaction Manufacture lawn mowers Cost of sales S600 Selling expense $100 Sales revenue S1,000 Net profit $300 Controlled sale Sales revenue S600 Foreign selling activities Sale to foreign customer Net profit $0 At the other extreme, a transfer price of $900 would allocate the combined profit of $300 entirely to Toro, as follows. Effect on Toro Production cost $600 Transaction Manufacture lawn mowers Controlled sale Foreign selling activities Sale to foreign customer Effect on Mahindra Cost of sales $900 Selling expense $100 Sales revenue= S1,000 Net profit $0 Sales revenue S900 Net profit $300 The facts are the same as above. Assume that the U.S. tax rate is 25% and the applicable Indian (foreign) tax rate is 35%. Based on this table, answer the following questions: (SHOW ALL CALCULATIONS TO RECEIVE CREDIT - NOT JUST THE FINAL ANSWERS) A. Determine what prices will Toro use in each markets? B. Given the tax structures, how should Joh Deere allocate its sales, revenues and profits to maximize after-tax profits? Why? Explain