Question

I am completely lost. I am not a accounting major and need assistance, not sure if I put in the correct codes. The problem is this: GenTrac Global 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 $1,800 and variable cost is $1,000; they are sold by Division B for $2,100. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price.

Here is my excel spreadsheet

	Full Cost		Variable Cost
Division A Taxes:
Transfer Price	1800		1000
Less Cost
Taxable Income	1800		1000
Taxes in Low Country (or refund)
Division B Taxes:
Sales Price	2100
Less Transfer Price
Taxable Income	2100		0
Income Taxes
Import Duty
Taxes in High Country (or refund)	0		0
Total Taxes

Answer 1

Here is the solution-

D Full Cost Variable Cost Division A Taxes: Transfer Price 1800 1000 Less Cost Taxable Income 1800 1000 Taxes in Low Country (or refund) 540 300 Division B Taxes: 2100 Sales Price 2100 Less Transfer Price 1800 1000 1100 Taxable Income 300 Income Taxes Import Duty Taxes in High Country (or refund) 440 120 270 150 Total Taxes 930 890 B.