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Heartwood Cabinets is setting its transfer price for cut walnut boards used in some of its most popular cabinet styles. Heartwood's external supplier of walnut boards, Appleton Sawmill, charges between $$250$ and $$290$ per thousand feet for walnut. Heartwood's sawmill can produce the cut walnut for $$235$ per thousand board feet. Its senior management negotiated a $($potential$)$ hybrid price of $$265$ per thousand board feet. Assume that Heartwood needs $125\mathrm{.}000$ board feet to produce enough walnut cabinets to meet anticipated demand. Marketing estimates that Heartwood will sell $5,500$ cabinet units at $$325$ per unit. Assume the manufacturing division has fred costs of $$7,250$ and variable costs of $$6\mathrm{.}50$ per cabinet. Also assume the sawmill has purchase costs of $$90$ per $1,000$ board feet and variable costs of $$1\mathrm{.}25$ per $1,000$ board feet.

Refer to your calculations in Brief Exercise $8$ for operating income for the sawmill and manufacturing divisions of Heartwood Cabinets. Now assume that the manufacturing division is located in the United States, which has a $26\%$ tax rate, and the sawmill is located in Hungary, which has a $9\%$ tax rate. Determine which transfer price yields the lowest tax obligation.

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