The MNE Company is composed of two divisions - the production division and the distribution...
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Accounting
The MNE Company is composed of two divisions - the production division and the distribution division. The production division is located in the country of Lotaxes, where the corporate tax rate is a flat 10%; the distribution division is located in the country of Hitaxes, where the corporate tax rate is a flat 40%. Suppose in a given year the production division produces 100 units of product at total (including selling and administrative) costs of $20,000. All units are transferred in the year to the distribution division which packages the products and sells all units of the product to outside customers for price $700 per unit. In packaging and selling the product, the distribution division incurs total costs of $100 per unit sold. Assume that both divisions begin and end the year with no inventories. Calculate the after-tax advantage (or disadvantage) to the MNE of setting a transfer price of $600 versus a transfer price of $400
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