Zen Manufacturing Inc. is a multinational firm with sales and manufacturing units in 15 countries. One of its manufacturing units, in country X, sells its product to a retail unit in country Y for $328,000. The unit in country X has manufacturing costs of $167,500 for these products. The retail unit in country Y sells the product to final customers for $467,500. Zen is considering adjusting its transfer prices to reduce overall corporate tax liability.

Required:

1. Assume that both country X and country Y have corporate income tax rates of 40% and that no special tax treaties or benefits apply to Zen. What would be the effect on Zens total tax burden if the manufacturing unit raises its price from $328,000 to $393,600?

2. What would be the effect on Zens total taxes if the manufacturing unit raised its price from $328,000 to $393,600 and the tax rates in countries X and Y are 20% and 40%, respectively?