# Question: Company GLM produces a product that consists of two parts

Company GLM produces a product that consists of two parts. The first part is produced by a subsidiary in country A at \$5 per unit. The second part is being produced by another subsidiary in country B at \$7 per unit. They are assembled by another one of GLM’s subsidiaries in country C at a cost of \$5 per unit.
GLM is considering selling the product in country C at \$25 per unit, or selling it to country D at the same price (\$25 per unit). Shipping the product to D will cost \$1 per unit. The tax rates in these four countries are:
A = 15%
B = 20%
C = 10%
D = 0% (no tax)
GLM’s management has to answer two questions:
(1) What transfer prices should be used by subsidiaries A and B when they charge subsidiary C? (Note: they cannot report a loss, so they need to break even at the least)
(2) Should the product be sold in country C or D? Show all your calculation. GLM is trying to maximize its aggregate after tax profits.

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