The Quiz Company manufactures telecommunications equipment at its plant in Reading, Pennsylvania. The company has marketing divisions throughout the world. A Quiz marketing division in Nuremberg, Germany, imports 140,000 broadband routers from the United States. The following information is available: (Click to view the information.) The company has determined that the full cost manufacturing price of $410 would minimize the total import duties and income taxes when exporting the broadband routers to Germany. Data table U.S. income tax rate on the U.S division's operating income 35% German income tax rate on the German division's operating income 39% German import duty 15% Variable manufacturing cost per router $285 Full manufacturing cost per router $410 $560 Selling price (net of marketing and distribution costs) in Germany Suppose the United States and German tax authorities only allow transfer prices that are between the full manufacturing cost per unit of $410 and a market price of $480, based on comparable imports into Germany. The German import duty is charged on the price at which the product is transferred into Germany. Any import duty paid to the German authorities is a deductible expense for calculating German income taxes. (Click to view the after-tax operating income earned by each division when selling 140,000 using a transfer price of (a) the full manufacturing cost per unit and (b) at market price of comparable imports.) Suppose that the U.S. division could sell as many broadband routers as it makes at $445 per unit in the U.S. market, net of all marketing and distribution costs. Read the requirements. Data table U.S. division Full costs Market price $410 $560 Revenues $ 57,400,000 $ 67,200,000 Costs 57,400,000 Full manufacturing costs 57,400,000 Division operating income 0 9,800,000 0 Division income taxes 3,430,000 $ 0 $ 6,370,000 Division after-tax operating income German division Revenues $ 78,400,000 $ 78,400,000 Costs Transferred-in costs 57,400,000 67,200,000 Import duties tax Total division costs 8,610,000 10,080,000 66,010,000 77,280,000 Division operating income 12,390,000 1,120,000 Division income taxes 4,832,100 436,800 $ 7,557,900 $ 683,200 Division after-tax operating income $ 7,557,900 $ 7,053,200 Total after-tax operating income Requirements 1. From the viewpoint of the Quiz Company as a whole, would after-tax operating income be maximized if it sold the 140,000 routers in the United States or in Germany? Show your computations. 2. Suppose division managers act autonomously to maximize their division's after-tax operating income. Will the transfer price using the full cost of $410 result in the U.S. division manager taking the actions determined to be optimal in requirement 1 of this exercise? Explain. 3. What is the minimum transfer price that the U.S. division manager would agree to? Does this transfer price result in the Quiz Company as a whole paying more import duty and taxes than using the full cost transfer price of $410? If so, by how much?