The XYZ Multinational Corporation has manufacturing facilities in country A and an assembly plant in country B. The company ships manufactured units from its plant in A to its assembly plant in B.
a. In April 2013, the company will ship 1.000 units with a production cost of 65 per unit to its plant in country B. It's operating expenses in A are 15,000 for the month. The income tax rate in A is 20 percent and in B 40 percent. The company plans to have a transfer price of 100 per unit. The final product can be sold in B for 140. B's operating expenses are 10,000 during the month. I low much will the combined profits he of the two operations in April 2013?
b. Could the company benefit by changing the transfer price to 120?
c. Now, suppose the income tax rate in A is 40 percent, while in B it is 20 percent What will the combined profit be if all other numbers are the same as in a?
d. What would he the result in c if the company decreased its transfer price