Thorson Company manufactures a product in its Manufacturing Division in a country with a $25\%$ tax rate and transfers the product to its Marketing Division in a country with a $35\%$ tax rate. The full cost of manufacturing the product is $$1,200$ per unit and variable manufacturing cost is $$800$ per unit. The selling price is $$1,800.$ The tax authorities in both countries allow firms to use variable cost, full cost, or market price as the transfer price.

Required:

$1.$ Compute the income tax and profit after tax for each division and total for the company for each transfer price option $($variable cost$,$ full cost, market price$).$ Which transfer price results in the lowest income tax and highest profit for the company?

$2.$ How would your answer change if the Manufacturing Division was in a country with a $35\%$ tax rate and the Marketing Division was in a country with a $25\%$ tax rate?

$3.$ Refer back to the original information. An import duty of $15\%$ of the transfer price is paid on all imported products. The import duty is not deductible in computing taxable income. Compute the income tax, import tax, and profit after tax for each division and total for the company for each transfer price option $($variable cost$,$ full cost, market price$).$ Now which transfer price results in the highest profit for the company?