Discuss allocation based on gross profit

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USCO (a domestic corporation) sells its products both within and without the United States.  During 2015, USCO's sales totaled $200 million, and cost of goods sold of $120 million. Allocation between U.S. and non-U.S. sources was as follows:

 

U.S.-source

Foreign-source

Sales

$80,000,000

$120,000,000

Cost of Goods Sold

(40,000,000)

(80,000,000)

Gross Profit

$40,000,000

$40,000,000

The company incurred $12,000,000 of selling, general and administrative (SG&A) expenses. Assume that in apportioning SG&A expenses between U.S. and Foreign-source income, the company can choose between allocation based on gross sales and allocation based on gross profit. Which method will result in the lowest amount of U.S. source income?

Reference no: EM131812450

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