The Variable Cost of Part X Is $50 and the Full

question 9

Multiple Choice

The variable cost of Part X is $50 and the full cost of the part is $80. The part is produced in country A and transferred to a plant in country B. Country A has a 30% income tax rate. Country B has a 50% income tax rate and an import duty equal to 10% of the price of the item. Part X can be transferred at full cost or variable cost. Assume that Part X is priced at full cost. The net tax effect is:

• A) an increase in tax by $6 per unit
• B) a decrease in tax by $15 per unit
• C) a decrease in tax by $3 per unit
• D) an increase in tax by $9 per unit

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Definitions:

Service Departments

Units within a company that provide support services to other departments but do not directly generate revenue.

Operating Departments

Divisions or units within an organization directly involved in its core business activities, responsible for producing the goods or services it offers.

Income Statements

Reports that detail the revenue, expenses, and profitability of a company over a defined accounting period, showing its financial performance.

Service Departments

Units within an organization that provide support services to other departments, rather than producing goods or services for external customers.