As a manager, you may be tasked with making recommendations as to how your organization should structure its transfer pricing. This is especially true in cases when both variable or full cost transfer pricing is acceptable, and the choice is not obvious.

GenTrac Global 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 controllers full cost is $1,800 and variable cost is $1,000; they are sold by Division B for $2,100. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price.