Division A transfers a profitable subassembly to Division B,where it is assembled into a final product.Division A is located in New Zealand,which has a high tax rate.Division B is located in Thailand,which has a low tax rate.Ideally, (1)which type of before tax income should each division report from the transfer and (2)what type of transfer price should be set for the subassembly?
Division A
Division B
Division C
Income
Income
Price
A) low
Low
Low
B) low
High
Low
C) low
High
High
D) high
Low
High

Question

Quizplus · Accepted Answer

Division A should report low income to minimize taxes in the high-tax country (New Zealand), while Division B should report high income to take advantage of the low-tax environment in Thailand. A low transfer price should be set for the subassembly to achieve this income distribution.

Division a Transfers a Profitable Subassembly to Division B,where It