Question: Akku Company imports die-cast parts from its German subsidiary that are used in the production of children's toys. Per unit, part 169 costs the German subsidiary $1.00 to produce and $0.20 to ship to Akku Company. Akku Company uses part 169 to produce a toy airplane that it sells to U.S. toy stores for $4.50 per unit. The following tax rates apply:
German income tax 40%
U.S. income tax 35%
U.S. import duty 10% of invoice price
Required: a. Determine the total amount of taxes and duties paid to the U.S. and German governments if part 169 is sold to Akku Company at a price of $1.50 per unit.
b. Determine the total amount of taxes and duties paid to the U.S. and German governments if part 169 is sold to Akku Company at a price of $1.80 per unit.
c. Explain why the results obtained in parts (a) and (b) differ.