Week 4 Assignment

US Automations Inc. manufactures robotic controllers in Division A, a country with a 30% income tax rate, and transfers them to Division B, a country with a 40% income tax. 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. The controller’s full cost is $900 and variable cost is $700; they are sold by Division B for $2,000. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price.