Crane Company has a manufacturing subsidiary in Singapore that produces high-end exercise equipment for U.S. customers. The manufacturing subsidiary has total manufacturing costs of $1,500,000, plus general and administrative expenses of $350,000. The manufacturing unit sells the equipment for $2,500,000 to the U.S. marketing subsidiary, which sells it to the final consurmer for an aggregate of $3,500,000. The sales subsidiary has total marketing, general, and administrative costs of $200,000. Assume that Singapore has a corporate tax rate of 33% and that the U.S. tax rate is 46%. Assume that no tax treaties or other special tax treatments apply.

Problem Information

Manufacturing subsidiary total manufacturing costs ...... 1500000

Plus general and administrative expenses of .............. 350000

The manufacturing unit sells the equipment for ........... 2500000

U.S. marketing subsidiary, sells it for ..................... 3500000

The sales subsidiary has total marketing, general, and administrative costs ................................... 200000

Singapore corporate tax rate ............................. 0.33 

U.S. tax rate ............................................... 0.46

Requirements:

What is the effect on Crane Company's total corporate level taxes if the manufacturing subsidiary raises its price by 20 percent to the sales subsidiary?