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Buying division to take advantage of best tax rate

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Reference no: EM131616534

About Transfer Pricing.

Selling Division sells 23,000 units to Buying Division. Selling Division's tax rate is 10%, and Buying Division's tax rate is 30%. Market price is $65.40 per unit, and it costs Selling Division $26.20 to produce each unit. Overall Corp. abides by tax authority guidelines and can support the use of market-based transfer pricing and cost plus 20% transfer pricing.

Question 1:

Which transfer pricing method should Overall Corp. use when Selling Division sells to Buying Division to take advantage of the best tax rate?

Question 2:

What is the savings (in dollars) when this method is used? Please show your calculations.

Reference no: EM131616534

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