Stone Foods produces the majority of its cheese products in its U. S. based dairy division at a total outlay cost of $6.00 per unit. A large portion of the finished product is sold to Division B where it is packaged and sold overseas under a different label. The tax rate in Division B's country is higher than the U. S. tax rate. Assume the company desires to minimize the overall tax impact of the transfer (i) what type of relative pre-tax income should each division desire to achieve as a result of the transfer and (ii) what type of transfer price would accomplish your answer to (i).
Dairy Division Income Division B Income Transfer Price
A High Low Low
B Low High Low
C. Low High High
D. High Low High
E. Low High Low
Which letter A, B, C, D, or E is the correct answer?
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