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The XYZ Multinational Corporation has manufacturing facilities in country A and an assembly plant in country B. The company ships manufactured units from its plant
The XYZ Multinational Corporation has manufacturing facilities in country A and an assembly plant in country B. The company ships manufactured units from its plant in A to its assembly plant in B.
- In April 2013, the company ships 1,000 units with a production cost of 65 per unit to its plant in country B. Its operating expenses in A are 15,000 for the month. The income tax rate in A is 20 percent and in B 40 percent. The company plans to have a transfer price of 100 per unit. The final product can be sold in B for 140. B's operating expenses are 10,000 during the month. How much will the combined profits be of the two operation in April 2.13?
- Could the company benefit by changing the transfer price to 120?
- Now, suppose the income tax rate in A is 40 percent, while in B it is 20 percent. What will be combined profit be if all other numbers are the same as in a?
- What would be the result in c if the company decreased its transfer price to 90?
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