Exam 19: Management Control Systems, Transfer Pricing and Multinational Considerations

If an oil refinery used refinery down-time as a Balanced Scorecard control measure,it would represent the ________ perspective.

Answer the following questions using the information below: Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats.It has two divisions: the Bat Blade Division and the Assembly Division.The Bat Blade Division manufactures blades for the Assembly Division,which splices handles to the blades and sells the completed bats to retailers.The Bat Blade Division 'sells' blades to the Assembly Division.The market price for the Assembly Division to purchase a blade is $40.(Ignore changes in inventory. )The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units.The fixed costs for the Assembly Division are assumed to be $14 per bat at 50 000 units. Costs per blade are: Direct materials \ 8 Direct labour \ 6 Variable overhead \ 4 Division fixed costs \ 2 Assembly's costs per completed bat are: Direct materials \ 12 Direct labour \ 4 Variable overhead \ 1 Division fixed costs \ 14 -Market-based transfer pricing and cost-based transfer pricing are the only two methods for determining transfer prices.

Absenteeism would be an example of a Balanced Scorecard control measure from a customer perspective.

Evans Bicycle Company is highly decentralised.Each division is empowered to make its own sales decisions.The Assembly Division can purchase wheel rims,a key component,from the Production Division or from external suppliers.The Production Division has been the major supplier of rims in recent years.The Assembly Division has announced that two external suppliers will be used to purchase the rims at $30 per rim for the next year.The Production Division recently increased its unit price to $50.The manager of the Production Division presented the following information - variable cost $42 and fixed cost $8 - to top management in order to attempt to force the Assembly Division to purchase the rims internally.The Assembly Division purchases 20 000 rims per month. What would be the monthly operating advantage (or disadvantage)of purchasing the goods internally,assuming the external supplier increased its price to $80 per rim and the Production Division is able to utilise the facilities for other operations,resulting in a monthly cash-operating savings of $35 per rim?

Perth Pillow Company is highly decentralised.Each division is empowered to make its own sales decisions.The Assembly Division can purchase swan down,a key component,from the Production Division or from external suppliers.The Production Division has been the major supplier of swan down in recent years.The Assembly Division has announced that two external suppliers will be used to purchase the swan down at $20 per kilo for the next year.The Production Division recently increased its unit price to $40.The manager of the Production Division presented the following information - variable cost $32 and fixed cost $8 - to top management in order to attempt to force the Assembly Division to purchase the swan down internally.The Assembly Division purchases 20 000 kilos of swan down per month. What would be the monthly operating advantage (or disadvantage)of purchasing the goods internally,assuming the external supplier increased its price to $50 per kilo and the Production Division is able to utilise the facilities for other operations,resulting in a monthly cash-operating savings of $30 per kilo?

Answer the following questions using the information below: Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats.It has two divisions: the Bat Blade Division and the Assembly Division.The Bat Blade Division manufactures blades for the Assembly Division,which splices handles to the blades and sells the completed bats to retailers.The Bat Blade Division 'sells' blades to the Assembly Division.The market price for the Assembly Division to purchase a blade is $40.(Ignore changes in inventory. )The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units.The fixed costs for the Assembly Division are assumed to be $14 per bat at 50 000 units. Costs per blade are: Direct materials \ 8 Direct labour \ 6 Variable overhead \ 4 Division fixed costs \ 2 Assembly's costs per completed bat are: Direct materials \ 12 Direct labour \ 4 Variable overhead \ 1 Division fixed costs \ 14 -The market-based transfer price per blade from the Bat Blade Division to the Assembly Division is:

Which of the following is an advantage of decentralisation?

A management control system would include both formal as well as informal control mechanisms.

Answer the following questions using the information below: Division A sells soybean paste internally to Division B,which in turn,produces soybean burgers that sell for $5 per kilo.Division A incurs costs of $0.75 per kilo while Division B incurs additional costs of $2.50 per kilo. -Which formula correctly reflects the company's operating profit per kilo?

The minimum transfer price equals:

Answer the following questions using the information below: Division A sells soybean paste internally to Division B,which in turn,produces soybean burgers that sell for $5 per kilo.Division A incurs costs of $0.75 per kilo while Division B incurs additional costs of $2.50 per kilo. -What is Division A's operating profit per kilo,assuming the transfer price of the soybean paste is set at $1.25 per kilo?

Transferring products or services at market prices generally leads to optimal decisions when:

The Eucalypt Forestry Company has two divisions.The Cutting Division prepares timber at its sawmills.The Assembly Division prepares the cut timber into finished wood for the furniture industry.No inventories exist in either division at the beginning of 2018.During the year,the Cutting Division prepared 60 000 cubic meters of wood at a cost of $660 000.All the timber was transferred to the Assembly Division,where additional operating costs of $6 per cubic meter were incurred.The 600 000 board metres of finished wood were sold for $2 500 000. Required: a.Determine the operating profit for each division if the transfer price from Cutting to Assembly is at cost - $11 a cubic meter. b.Determine the operating profit for each division if the transfer price is $9 per cubic meter. c.Since the Cutting Division sells all of its wood internally to the Assembly Division,does the manager care what price is selected? Why? Should the Cutting Division be a cost centre or a profit centre under the circumstances? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Answer the following questions using the information below: Bass Strait Oil Corporation has two divisions: Refining and Production.The company's primary product is Enkoil Oil.Each division's costs are provided below: Production: Variable costs per barrel of oil \ 3 Fixed costs per barrel of oil \ 2 Refining: Variable costs per barrel of oil \ 10 Fixed costs per barrel of oil \ 12 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 $20 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?

The Home Office Company makes all types of office desks.The Computer Desk Division is currently producing 10 000 desks per year with a capacity of 15 000.The variable costs assigned to each desk are $300 and annual fixed costs of the division are $900 000.The computer desk sells for $400. The Executive Division wants to buy 5000 desks at $280 for its custom office design business.The Computer Desk manager refused the order because the price is below variable cost.The executive manager argues that the order should be accepted because it will lower the fixed cost per desk from $90 to $60 and will take the division to its capacity,thereby causing operations to be at their most efficient level. Required: a.Should the order from the Executive Division be accepted by the Computer Desk Division? Why? b.From the perspective of the Computer Desk Division and the company,should the order be accepted if the Executive Division plans on selling the desks in the outside market for $420 after incurring additional costs of $100 per desk? c.What action should the company CEO take? _____________________________________________________________________________________________ _____________________________________________________________________________________________

The Micro Division of ACT Computers produces computer chips that are sold to the Personal Computer Division and to outsiders.Operating data for the Micro Division for 2017 are as follows: Internal Sales External Sales Sales: 300000 chips at \ 10 \ 3000000 200000 chips at \ 12 \ 2400000 Variable expenses at \ 4 Contribution margin \ 1800000 \ 1600000 Fixed cost (allocated in units) Operating profit \ 300000 \ 600000 The Personal Computer Division has just received an offer from an outside supplier to furnish chips at $8.60 each.The manager of Micro Division is not willing to meet the $8.60 price.She argues that it costs her $9.00 to produce and sell each chip.Sales to outside customers are at a maximum of 200 000 chips. Required: a.Verify the Micro Division's $9.00 unit cost figure. b.Should the Micro Division meet the outside price of $8.60? Explain. c.Could the $8.60 price be met and still show a profit for the Micro Division sales to the Personal Computer Division? Show computations. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Which of the following is NOT a characteristic of a management control system?

________ means minimum constraints and maximum freedom for managers at the lowest levels of an organisation to make decisions and to take actions.

The 'unified reporting method' presents financial and non-financial information in a single report.

Answer the following questions using the information below: Calculate the Division operating profit for the Cool 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 $77.(Ignore changes in inventory. )The fixed costs for the Compressor Division are assumed to be the same over the range of 5000-10 000 units.The fixed costs for the Assembly Division are assumed to be $15.00 per unit at 10 000 units. Compressor's costs per compressor are: Direct materials \ 34.00 Direct labour \ 14.50 Variable overhead \ 6.00 Division fixed costs \ 15.00 Assembly's costs per completed air conditioner are: Direct materials \ 300.00 Direct labour \ 125.00 Variable overhead \ 40.00 Division fixed costs \ 15.00 -What is the market-based transfer price per compressor from the Compressor Division to the Assembly Division?