ScenarioGraphic Art, Inc. has a print division that produces art prints in China and a Retail Division in Greece that sells the prints. The Print Division has a low 20% income tax rate and the Retail
| Graphic Art, Inc. | |||
| Transfer Pricing Methods | |||
| Full Cost | Variable Cost | ||
| Print Division (China): | |||
| Transfer Price | 1,500 | 1,000 | |
| Less: Cost | (1,500) | (1,500) | |
| Taxable Income | - | (500) | |
| Income Taxes (or refund) | 20% | (100) | |
| Retail Division (Greece): | |||
| Sales Price | 2,000 | 2,000 | |
| Less: Transfer Price | (1,500) | (1,000) | |
| Taxable Income | 500 | 1,000 | |
| Income Taxes | 50% | 250 | 500 |
| Import Duty | 10% | 150 | 100 |
| Taxes in Retail Division | 400 | 600 | |
| Total Taxes | 400 | 500 | |
| China Tax Rate | 20% | ||
| Greece Tax Rate | 50% | ||
| Import Duty | 10% | ||
| Full Cost | 1,500 | ||
| Variable Cost | 1,000 | ||
| Sales Price | 2,000 | ||
