Multinational transfer pricing, goal congruence (continuation of 22-23) Suppose that the U.S. division could sell as many units of Product 4A36 as it makes at $900 per unit in the U.S. market, net of all marketing and distribution costs.
1. From the viewpoint of the Mornay Company as a whole, would after-tax operating income be maximized if it sold the 10,000 units of Product 4A36 in the United States or in Austria? Show your computations.
2. Suppose division managers act autonomously to maximize their division’s after-tax operating income. Will the transfer price calculated in requirement 2 of Exercise 22-23 result in the U.S. division manager taking the actions determined to be optimal in requirement 1 of this exercise? Explain.
3. What is the minimum transfer price that the U.S. division manager would agree to? Does this transfer price result in the Mornay Company as a whole paying more import duty and taxes than the answer to requirement 2 of Exercise 22-23? If so, by how much?