Ralston, a division of Olin Corporation, is located in the United States. Its effective income tax rate is 30%. Another division of Olin, Tarlton, is located in Canada, where the income tax rate is 40%. Tarlton manufactures, among other things, an intermediate product for Ralston called DATA-2022. Tarlton operates at capacity and makes 15,000 units of DATA-2022 for Ralston each period, at a variable cost of $28 per unit. Because the DATA-2022 must be shipped from Canada to the United States, it costs Tarlton an additional $4 per unit to ship the DATA-2022 to Ralston. In past, Tarlton had no external customer for DATA-2022. There are no incremental fixed costs for DATA-2022. Tarlton also manufactures other products and DATA-2022 is a relatively small part of Tarltons business.

A product similar to DATA-2022 that Ralston could use as a substitute is available in the United States for $38.50 per unit. No matter from where it purchases DATA-2022, Ralstons sells the finished product in the market for $60 per unit. Ralston also manufactures other products. Ralston has no variable cost associated with DATA-2022. Like Tarlton, Ralston also manufactures other products and DATA-2022 is a relatively small part of its business. Ralstons plant-wide fixed costs do not change by the choice of vendors or units of products produced. They are allocated based on total revenue and it is $10 per unit for DATA-2020.

1. What transfer price would minimize income taxes for Olin Corporation as a whole? Would Ralston and Tarlton agree to be evaluated on operating income using this transfer price?