Exam 22: Management Control Systems, Transfer Pricing, and Multinational Considerations

The transfer-pricing method that reduces the goal-congruence problems associated with a pure cost-plus-based transfer-pricing method is:

Answer the following questions using the information below: Greenlawn Corporation has two divisions, Distribution and Production. The company's primary product is fertilizer. Each division's costs are provided below: The Distribution Division has been operating at a capacity of 4,000,000 pounds a week and usually purchases 2,000,000 pounds from the Production Division and 2,000,000 pounds from other suppliers at $0.90 per pound. -Assume 100,000 pounds are transferred from the Production Division to the Distribution Division for a transfer price of $0.80 per pound. The Distribution Division sells the 100,000 pounds at a price of $1.10 each to customers. What is the operating income of both divisions together?

Briefly describe the conditions that should be met for market-based transfer pricing to lead to optimal decision making among subunits of a large organization.

Answer the following questions using the information below: Calculate the Division operating income for the Artic Air Company which manufactures only one type of air conditioner and has two divisions, the Compressor Division, and the Assembly Division. The Compressor Division manufactures compressors for the Assembly Division, which completes the air conditioner and sells it to retailers. The Compressor Division "sells" compressors to the Assembly Division. The market price for the Assembly Division to purchase a compressor is $38.50. (Ignore changes in inventory.)The fixed costs for the Compressor Division are assumed to be the same over the range of 5,000-10,000 units. The fixed costs for the Assembly Division are assumed to be $7.50 per unit at 10,000 units. -What is the transfer price per compressor from the Compressor Division to the Assembly Division if the transfer price per compressor is 110% of full costs?

Answer the following questions using the information below: Calculate the Division operating income for the AlphaShoe Company which manufactures only one type of shoe and has two divisions, the Sole Division, and the Assembly Division. The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers. The Sole Division "sells" soles to the Assembly Division. The market price for the Assembly Division to purchase a pair of soles is $40. (Ignore changes in inventory.)The fixed costs for the Sole Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Assembly Division are assumed to be $14 per pair at 100,000 units. -Assume the transfer price for a pair of soles is 180% of total costs of the Sole Division and 40,000 of soles are produced and transferred to the Assembly Division. The Sole Division's operating income is:

For each of the following activities, characteristics, and applications, identify whether they can be found in a centralized organization, a decentralized organization, or both types of organizations.

Exertion towards a goal is:

Optimal corporate decisions do NOT result when goods or services are transferred at:

Answer the following questions using the information below: Calculate the Division operating income for the Artic Air Company which manufactures only one type of air conditioner and has two divisions, the Compressor Division, and the Assembly Division. The Compressor Division manufactures compressors for the Assembly Division, which completes the air conditioner and sells it to retailers. The Compressor Division "sells" compressors to the Assembly Division. The market price for the Assembly Division to purchase a compressor is $38.50. (Ignore changes in inventory.)The fixed costs for the Compressor Division are assumed to be the same over the range of 5,000-10,000 units. The fixed costs for the Assembly Division are assumed to be $7.50 per unit at 10,000 units. -Assume the transfer price for a compressor is 150% of total costs of the Compressor Division and 1,000 of the compressors are produced and transferred to the Assembly Division. The Compressor Division's operating income is:

A transfer price is the price one subunit charges for a product or service supplied to another subunit of the same organization.

The formal management control system includes shared values, loyalties, and mutual commitments among members of the company, company culture, and norms about acceptable behavior for managers and other employees.

Answer the following questions using the information below: Penn Oil Corporation has two divisions, Refining and Production. The company's primary product is Luboil Oil. Each division's costs are provided below: The Refining Division has been operating at a capacity of 40,000 barrels a day and usually purchases 25,000 barrels of oil from the Production Division and 15,000 barrels from other suppliers at $60 per barrel. -What is the transfer price per barrel from the Production Division to the Refining Division, assuming the method used to place a value on each barrel of oil is 110% of full costs?

Answer the following questions using the information below: Division A sells ground veal internally to Division B, which in turn, produces veal burgers that sell for $10 per pound. Division A incurs costs of $1.50 per pound while Division B incurs additional costs of $5.00 per pound. -What is Division A's operating income per pound, assuming the transfer price of the ground veal is set at $2.50 per pound?

The costs used in cost-based transfer prices:

If a computer manufacturer used its common stock price as a Balanced Scorecard control measure, it would represent the ________ perspective.

A firm using a cost-based transfer price will never have the selling division be able to achieve goal congruence.

The Assembly Division of American Car Company has offered to purchase 90,000 batteries from the Electrical Division for $104 per unit. At a normal volume of 250,000 batteries per year, production costs per battery are as follows: The Electrical Division has been selling 250,000 batteries per year to outside buyers at $136 each; capacity is 350,000 batteries per year. The Assembly Division has been buying batteries from outside sources for $130 each. Required: a. Should the Electrical Division manager accept the offer? Explain. b. From the company's perspective, will the internal sales be of any benefit? Explain.

Area(s)which is/are usually appropriate for decentralized decision making is(are):

The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions.

One major advantage of negotiated transfer pricing is that it can be done with little time or effort.