Subsidiary X, Located in a Country with a 25% Corporate

question 36

Multiple Choice

Subsidiary X, located in a country with a 25% corporate income tax rate, and Subsidiary Y, located in a country with a 35% corporate income tax rate are part of a decentralized organization. They have been engaged in trade with one another using a negotiated transfer price of $50 per unit for sales by Subsidiary X to Subsidiary Y. Pipko, the parent company of both Subsidiary X and Subsidiary Y recently set a discretionary transfer price of $80 per unit for the transfers between X and Y. What is advantage of this decision?

• A) Net income for Subsidiary X will increase by $30 per unit.
• B) Net income for the corporation as a whole will increase by $30 per unit.
• C) Net income for the corporation as a whole will increase by $3 per unit.
• D) Net income for Subsidiary Y will decrease by $30 per unit.

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Definitions:

Policy Manuals

Documents that outline the protocols, rules, and guidelines to be followed within an organization.

Operations Manuals

Comprehensive documents that provide detailed instructions on how to perform operations or tasks within an organization effectively.

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Written communications used within an organization to convey information, directives, or official policies.

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