QUESTION 2 (25 MARKS) Canningham Incorporation (CI) produces parts in the United States, has a very strong local market for Part No 57. The variable production cost is US$40, and the company can sell its entire supply domestically for US$110. The US tax rate is 30%. Alternatively CI can ship the part to a division that is located in Switzerland, to be used in a product that the Swiss division will distribute throughout Europe. Information about the Swiss product and the division's operating environment follows: Selling price for final product Shipping fees to import part no 57 Labor, overhead, and additional material costs of final product Import duties levied on part no. 57 (to be paid by the Swiss division) Swiss tax rate US$400 US$20 US$230 10% of transfer price 40% Based on US and Swiss tax laws, the company has established a transfer price for part no 57 equals to the US market price. Assume that the Swiss can obtain part no 57 in Switzerland for US$125. Required: a) Discuss the income strategy to be implemented when tax rates differ between countries. (6 marks) b) Discuss as to whether the Swiss division buy part 57 locally or deal with the US division. Show your computations. (6 marks) CI's accounting department has figured that the company has figured out that the company will make US$66.40 for each unit for each and used in the Swiss division's product. Determine whether CI will be better off to sell its goods domestically and allow the Swiss division to acquire part no 57 in Switzerland rather than proceeding with the transfer. Show your computations to both US and Swiss operations to support your answer. (13 marks)