Querrey Incorporated and Ronno Incorporated conduct business in a foreign country that imposes a 3 percent VAT. Querrey produces entertainment videos at a $5.6 material cost per unit and sells the videos to Ronno for $7.8 per unit. Ronno sells the videos at retail for $8.5 per unit. This year, the combined efforts of Querrey and Ronno resulted in sales of 9.3 million videos to the public.

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