The Variable Cost of Part X Is $50 Per Unit

question 32

Multiple Choice

The variable cost of Part X is $50 per unit and the full cost of the part is $80 per unit.The part is produced in Portugal and transferred to a plant in the United States.Portugal has a 10% income tax rate.The United States 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 Part X is transferred at full cost.By using full cost instead of variable cost for the transfer price,the income tax effect per unit in Portugal is ________.

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