Analyze the effect of variable-cost transfer pricing methods

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Robo-Control Technologies 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 controller's full cost is $1,500 and variable cost is $1,000; they are sold by Division B for $2,000. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price.

Problem 1: Analyze the effect of both full-cost and variable-cost transfer pricing methods on cash flows

Reference no: EM132789104

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