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 percent capacity. In Italy, the income tax rate is 32 percent; in the United States, the corporate income tax rate is 35 percent. The market price of the component is $240 and the Italian plant's costs to manufacture the component are as follows:
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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