The correct way to approach this problem is to calculate the per unit contribution margin for both companies (U.S. and France) for each of the four alternatives, then subtract the applicable taxes for both companies for the four alternatives and total the after-tax contribution margins for both companies for each of the four alternatives. The highest total after-tax contribution margin is the best alternative. For this alternative, the schedule is as follows: US France Whole Company Selling price $65.00 $170.00 Variable costs 30.00 65.00 Other variable manufacturing costs -- 55.00 Shipping expense -- 15.00 ---------- ------------ Unit contribution margin before tax $35.00 $35.00 Tax 14.00 24.50 ---------- ------------ ------------ Net incremental profit per unit $21.00 $10.50 $31.50 This is not the highest possible incremental per unit profit for the company as a whole.
The correct way to approach this problem is to calculate the per unit contribution margin for both companies (U.S. and France) for each of the four alternatives, then subtract the applicable taxes for both companies for the four alternatives and total the after-tax contribution margins for both companies for each of the four alternatives. The highest total after-tax contribution margin is the best alternative. For this alternative, the schedule is as follows: US France Whole Company Selling price $65.00 $170.00 Variable costs 30.00 65.00 Other variable manufacturing costs -- 55.00 Shipping expense 15.00 -- ---------- ------------ Unit contribution margin before tax $20.00 $50.00 Tax 8.00 35.00 ---------- ------------ ------------ Net incremental profit per unit $12.00 $15.00 $27.00 This is not the highest possible incremental per unit profit for the company as a whole.
The correct way to approach this problem is to calculate the per unit contribution margin for both companies (U.S. and France) for each of the four alternatives, then subtract the applicable taxes for both companies for the four alternatives and total the after-tax contribution margins for both companies for each of the four alternatives. The highest total after-tax contribution margin is the best alternative. For this alternative, the schedule is as follows: US France Whole Company Selling price $30.00 $170.00 Variable costs 30.00 30.00 Other variable manufacturing costs -- 55.00 Shipping expense -- 15.00 ---------- ------------ Unit contribution margin before tax $0.00 $70.00 Tax 0.00 49.00 ---------- ------------ ------------ Net incremental profit per unit $0.00 $21.00 $21.00 This is not the highest possible incremental per unit profit for the company as a whole.
The correct way to approach this problem is to calculate the per unit contribution margin for both companies (U.S. and France) for each of the four alternatives, then subtract the applicable taxes for both companies for the four alternatives and total the after-tax contribution margins for both companies for each of the four alternatives. The highest total after-tax contribution margin is the best alternative. For this alternative, the schedule is as follows: US France Whole Company Selling price $65.00 $170.00 Variable costs 30.00 75.00 Other variable manufacturing costs -- 55.00 Shipping expense -- -- ---------- ------------ Unit contribution margin before tax $35.00 $40.00 Tax 14.00 28.00 ---------- ------------ ------------ Net incremental profit per unit $21.00 $12.00 $33.00 This is the highest net incremental profit of the four alternatives. As long as both companies (US and France) have positive after-tax contributions, then the company is generally better off if they each buy and sell separately.
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*If deemed preferable, these units could be sold in the U.S. Polar's applicable income tax rates are 40% in the U.S. and 70% in France. Polar will transfer Part No. 456 to the French subsidiary at either variable manufacturing cost or the domestic market price. On the basis of this information, which one of the following strategies should be recommended to Polar's management?