1. Consider a situation in which a manufacturing affiliate is selling to a distribution affiliate. The relevant tax information, operating expenses, and cost of goods sold are given in the following table. Fill out the entries in the table and determine how the overall income of the consolidated company would change if it were to increase the transfer price by $500:
2. If a manufacturing affiliate faces a 55% income tax rate, and its distribution affiliate faces a 40% income tax rate and a 15% import tariff, should transfer prices be high or low?