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Suppose division A produces product B in a country where the income tax rate is 30% and transfers it to division C, which operates in
- Suppose division A produces product B in a country where the income tax rate is 30% and transfers it to division C, which operates in a country with a 40% rate of income tax. An import duty equal to 25% of the price of product B is also assessed. The full cost per unit is $290, the variable cost $160.
Required: The tax authorities allow either variable or full cost transfer prices. Determine which should be chosen.
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