The Better Chair Company manufactures high-end chairs in alpha division in a country
with a 35% income tax rate and transfers these chairs to beta division in a country with
a 40% income tax. An import duty of 10% of the transfer price is paid on all imported
products. The import duty is not deductible in computing taxable income. The fixed cost
for a high-end chair is $200 and the variable cost is $650, which brings the full cost (i.e.,
total cost) for each chair to $850. They are sold by beta division for $1100. The tax
authorities in both countries allow firms to use either variable cost or full cost as the
transfer price.