Querrey Incorporated and Ronno Incorporated conduct business in a foreign country that imposes a 3 percent VAT. Querrey produces entertainment videos at a $3.8 material cost per unit and sells the videos to Ronno for $6.2 per unit. Ronno sells the videos at retail for $7.1 per unit. This year, the combined efforts of Querrey and Ronno resulted in sales of 8.4 million videos to the public.