The following information has been provided to you by Kelly Manufacturing Pty Ltd which operates a manufacturing facility in Australia:

The entity sells its products to its affiliate in Fiji.

The current transfer price has been determined based on cost plus a profit margin.

Each subsidiary's performance is evaluated from a profit centre perspective.

The following is the profit and loss statement based on the current transfer price per unit:

Australia Fiji Consolidated Sales 2 500 3 500 3 500 Cost of sales 1 200 2 500 1 200 Gross margin 1 300 1 000 2 300 Operating expenses 200 200 400 Transportation costs 200 -0- 200 Import duty (15%) -0- 375 375 Pre-tax income 900 425 1 325 Income tax (25%/30%) 225 128 353 Net income after tax 675 297 972