Starbright Corporation produces goods in the United States. The market is strong enough that they can sell all they produce. They sell much of their product to a division of their parent company in Sweden. The manufacturing costs for the product is $760. They can sell this product in the U.S. for $1100. The U.S. tax rate is 40%. Sweden can use the product to produce a hot-selling item in Sweden. The selling price of this Swedish product is $1,450. There is a 10% duty tax on all imported items and the Swedish division will incur an additional $100 to complete their product. The tax rate in Sweden is 55%. There is an additional shipping charge of $50 per unit to ship the material to Sweden. Transfer prices must be set at U.S. manufacturing cost or the selling price in the U.S.
1. Which transfer price is optimal for the U.S. division? (show your calculations)
2. Which price is optimal for the Swedish division? (show your calculations)
3. Which price is optimal for the corporation?