The Variable Cost of Part X Is $50 Per Unit

question 147

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 Country Z and transferred to a plant in Country B.Country Z has a 10% 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 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 Country B is ________.

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

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