GLM is considering selling the product in country C at $25 per unit, or selling it to country D at the same price ($25 per unit). Shipping the product to D will cost $1 per unit. The tax rates in these four countries are:
A = 15%
B = 20%
C = 10%
D = 0% (no tax)
GLM’s management has to answer two questions:
(1) What transfer prices should be used by subsidiaries A and B when they charge subsidiary C? (Note: they cannot report a loss, so they need to break even at the least)
(2) Should the product be sold in country C or D?
Show all your calculation. GLM is trying to maximize its aggregate after tax profits.
The best way to approach your question... View the full answer