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 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 Part X is transferred at full cost.By using full cost instead of variable cost for the transfer price,the net savings is ________.
A)$3 per unit
B)$6 per unit
C)$9 per unit
D)$15 per unit

Question

Quizplus · Accepted Answer

If the part is transferred at variable cost, then the cost of the part in Country B would be $50/unit. Applying the income tax rate of 50% would result in an additional cost of $25/unit. Additionally, applying the 10% import duty on the variable transfer cost would result in an additional cost of $5/unit. Thus, the total cost of the part in Country B would be $80/unit, which is the same as the full cost transfer price.

Therefore, there is no savings from transferring at full cost instead of variable cost. The answer is $0 savings.

The Variable Cost of Part X Is $50 Per Unit