Question

Sara Company imports wooden bowls from its Australian subsidiary. Per unit, this product costs the Australian subsidiary $8.00 to produce and $1.00 to ship to Sara Company. Sara Company uses bowls for home and kitchen set that it sells to U.S. furniture stores for $20 per unit. The following tax rates apply:

Australian income tax = 30%

U.S. income tax = 35% U.S.

import duty = 10% of invoice price

Requirements

1. If the wooden bowl is sold to Sara Company at a price of $16 per unit, determine the total amount of:

a) Net income.

b) Taxes and duties paid to the U.S. and Australian governments.

2. If the wooden bowl is sold to Sara Company at a price of $18 per unit, determine the total amount of:

a) Net income.

b) Taxes and duties paid to the U.S. and Australian governments.

3. Explain why the results obtained in parts (1) and (2) differ.

You have to answer all required questions correctly

Answer 1