Conner Manufacturing Has One Plant Located in Italy and Another

Conner Manufacturing has one plant located in Italy and another plant located in the United States. The Italian plant manufactures a component used in a finished product manufactured at the U.S. plant. Currently, the Italian plant is operating at 75 per cent capacity. In Italy, the income tax rate is 32 per cent; in the United States, the corporate income tax rate is 35 per cent. The market price of the component is £240 and the Italian plant's costs to manufacture the component are as follows: $\begin{array}{lr}\text { Direct materials } & £ 60 \\\text { Direct labour } & 40 \\\text { Variable overhead } & 20 \\\text { Fixed overhead } & 30\end{array}$ Which transfer price would be in the best interest of the overall company?

A) £120
B) £100
C) £150
D) £240

Correct Answer:

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