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Answer (C) is correct . If the 150,000 components are sold separately in the U.S., the after-tax profit per unit will be $21 [($65 – $30) ×0.6]. The French subsidiary will then purchase 150,000 components domestically to include in the subassembly. The per-unit profit on sales of the subassembly will be $12 [($170 – $75 – $55) × 0.3]. The total per-unit profit for the consolidated entity from these transactions will therefore be $33 ($21 + $12).

Answer (A) is incorrect because If the components are transferred at cost, no tax will be paid in the U.S., and the per-unit tax on French sales of the subassembly will be $49 [($170 – $30 – $15?– $55) × .7]. Thus, the consolidated entity’s per-unit profit will be $21 ($170 – $30 – $15 – $55 – $49).
Answer (B) is incorrect because If the transfer is at $65, U.S. tax per unit will be $14 [($65 – $30) × .4], and the French tax per unit will be $24.50 [($170 – $65 – $15 – $55) × .7]. The consolidated entity’s per-unit profit will therefore be $31.50 ($170 – $30 – $15?– $55 – $14 – $24.50).
Answer (D) is incorrect because If the transfer is at $65 and the U.S. parent pays the shipping costs, the U.S. tax per unit will be $8 [($65 – $30 – $15) × .4], and the French tax per unit will be $35 [($170 – $65 – $55) × .7]. The consolidated entity’s per-unit profit will be $27 ($170 – $30 – $15?– $55 – $8 – $35).