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30 31 L015-2,3,4% point each). During the current year Q Inc.'s foreign Division A incurred production costs of $4 million for units that are transferred to its 32 other foreign Division, B. Costs in Division B, outside of the costs of production of the final product are $8 million. These are third-party costs. Sales 33 revenue for the final product for Division B is $30 million. Other companies in the same country Import a similar type of part as Division B at a cost of $7 34 million. Tuesday has set its transfer price at $14 million, Justifying this price because of the special controls it has on the operations in Division A as well as 35 its special manufacturing method. The tax rate in the country where Division A is located is 40% while the tax rate for Division B's country is 70%. 36 37 38 a. Draw a diagram that identifies the internal buyer, internal seller, and what is transferred to each 39 40 DIVA DivB 41 Internal Seller Internal Buyer 42 Units transferred to B 43 44 45 b. What would Tilesday's total tax liability for both divisions be if it used the $7M transfer price? 46 in millions Tax liability Div B 12.1 47 Diva 30 (in millions) Revenue 48 TP 7 49 VC 3 7 4 50 Profit before tax 8 Costs 15 51 Tax at 40% Before tax 1.6 2.4 M 52 Profit after tax 10.5 Tax at 70% 4.5 Profit after tax 53 54 55 c. What would the liability be if it used the $14M transfer price? 56

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