Canadian Medical Instruments produces a variety of medical products at its plant in Saskatoon. The company has sales divisions worldwide. One of these sales divisions is located in Uppsala, Sweden. Assume that the combined federal and provincial income tax rate applied to Saskatoon operations is 34 percent, the Swedish rate is 60 percent, and a 12 percent import duty is imposed on medical supplies brought into Sweden. One product produced in Saskatoon and shipped to Sweden is a heart defibrillator. The variable cost of production is $400 per unit, and the fully allocated cost is $650 per unit. 

1. Suppose the Swedish and Canadian governments allow either the variable or fully allocated cost to be used as a transfer price. Which price should Canadian Medical Instruments choose to minimize the total of income taxes and import duties? Compute the amount the company saves if it uses your suggested transfer price instead of the alternative. Assume import duties are not deductible for tax purposes. 

2. Suppose the Swedish parliament passed a law decreasing the income tax rate to 50 percent and increasing the duty on heart monitors to 20 percent. Repeat number 1, using these new facts.