Wuzhou Blade Company (Hong Kong) exports razor blades to its wholly owned parent company, Cranfield Eversharp (Great Britain). Hong Kong tax rates are 16% and British tax rates are 30%. Kowloon calculates its profit per container as follows (all values in British pounds).

Baseline Analysis Assumptions Hong Kong Great Britain Corporate income tax rate 16.0% 30.0% Desired markup on transfers 15.0% 15.0% Volume 1,000 Constructing Transfer (Sales) Wuzhou Blade Cran field Eversharp Consolidated Price Per Unit (British pounds) (British pounds) (British pounds) Direct costs $10,000 f16,100 Overhead 4.000 1,000 Total costs $14,000 $17,100 Desired markup 2,100 2,565 Transfer price (sales price) f16,100 $19,665 Income Statement (prices x volume) Sales price $16,100,000 $19,665,000 Less total costs (14,000,000) (17,100,000) Taxable income $2,100,000 $2,565,000 Less taxes (336,000) (769,500) $1,105,500 Profit, after-tax $1,764,000 $1,795,500 $3,559,500