Reference no: EM133125631

Question - California Computers, Inc. (CC), with its headquarters in White Park, California, manufactures and sells a variety of computer devices. CC also has a wholly-owned subsidiary that operates in Mexico, and each of the two divisions is run as a profit center. The Mexico division is a manufacturing facility that manufactures memory devices, which are then packaged and labeled for sale and distribution in the US market. The full costs of the memory devices manufactured in Mexico are USD 400 per unit. The market price of these units if sold (under a local label) in Mexico is the equivalent of USD 450. There is no incremental cost of labeling irrespective of where the devices are sold. The income tax rates are 30 and 40 percent in Mexico and USA respectively. There is no export duty in Mexico and no import duty in the US.

Required - If the material is sold in the US for USD 475, calculate which transfer price from Mexico to the USA (full cost or market price) will maximize the global per unit after-tax income?