Port Ltd. has 2 divisions. Division PA, which is an automobile part manufacturing division is situated in Country X, while Division AU, which is the assembling division is situated in Country Y. Country Y has a higher tax rate than Country X. How should the transfer prices be set between the two divisions such that the corporation can aim to minimize the overall tax burden? Any Transfer price can be used since both the divisions are part of the same corporation O Transfer price will not affect the total tax paid by the corporation Division PA should sell to division AU at lower prices Division PA should sell to division AU at higher prices

Port Ltd. has 2 divisions. Division PA, which is an automobile part manufacturing division is situated in Country X, while Division AU, which is the assembling division is situated in Country Y. Country Y has a higher tax rate than Country X. How should the transfer prices be set between the two divisions such that the corporation can aim to minimize the overall tax burden? Any Transfer price can be used since both the divisions are part of the same corporation O Transfer price will not affect the total tax paid by the corporation Division PA should sell to division AU at lower prices Division PA should sell to division AU at higher prices

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Port Ltd. has 2 divisions. Division PA, which is an automobile part manufacturing division is situated
in Country X, while Division AU, which is the assembling division is situated in Country Y. Country Y
has a higher tax rate than Country X. How should the transfer prices be set between the two
divisions such that the corporation can aim to minimize the overall tax burden?
O Any Transfer price can be used since both the divisions are part of the same corporation
Transfer price will not affect the total tax paid by the corporation
O Division PA should sell to division AU at lower prices
Division PA should sell to division AU at higher prices

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