46. Falmouth Kettle Company, a U.S. corporation, sells its products in the United States and Europe. During the current year, selling, general, and administrative (SG&A) expenses included:

Personnel department $ 500 Training department 350 President’s salary 400 Sales manager’s salary 200 Other general and administrative 550 Total SG&A expenses $2,000 Falmouth had $12,000 of gross sales to U.S.

customers and $3,000 of gross sales to European customers. Gross income (sales minus cost of goods sold) from domestic sales was $3,000 and gross profit from foreign sales was $1,000. Apportion Falmouth’s SG&A expenses to foreign source income using the following methods:

a. Gross sales.

b. Gross income.

c. If Falmouth wants to maximize its foreign tax credit limitation, which method produces the better outcome? Assume the FDII deduction does not apply.