USCO (a domestic corporation) sells its products both within and without the United States. During 2015, USCO's sales totaled $200 million, and cost of goods sold of $120 million. Allocation between U.S. and non-U.S. sources was as follows:
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|
U.S.-source
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Foreign-source
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|
Sales
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$80,000,000
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$120,000,000
|
|
Cost of Goods Sold
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(40,000,000)
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(80,000,000)
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|
Gross Profit
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$40,000,000
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$40,000,000
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The company incurred $12,000,000 of selling, general and administrative (SG&A) expenses. Assume that in apportioning SG&A expenses between U.S. and Foreign-source income, the company can choose between allocation based on gross sales and allocation based on gross profit. Which method will result in the lowest amount of U.S. source income?