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

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

One benefit of centralisation is an increase in the development of an experienced pool of management talent to fill higher-level management positions.

Management control systems reflect only financial data.

The Derwent Omega-3 Oil Company has two divisions.The Fish-oil Division extracts Omega-3 oil from its salmon fishery activities.The Finishing Division converts the oil into natural health products.No inventories exist in either division at the beginning of 2017.During the year,the Fish-oil Division extracted 30 000 litres of oil at a cost of $330 000.All the oil was transferred to the Finishing Division,where additional operating costs of $6 per litre were incurred.The 300 000 litres of finished product were sold for $1 250 000. Required: a.Determine the operating profit for each division if the transfer price from Fish-oil to Finishing is at cost - $11 a litre. b.Determine the operating profit for each division if the transfer price is $9 per litre. c.Since the Fish-oil Division sells all of its oil internally to the Finishing Division,does the manager care what price is selected? Why? Should the Fish-oil Division be a cost centre or a profit centre under the circumstances? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Glenelg Sheet Metal Company has two divisions.The Raw Material Division prepares sheet metal at its warehouse facility.The Fabrication Division prepares the cut sheet metal into finished products for the air conditioning industry.No inventories exist in either division at the beginning of 2017.During the year,the Raw Material Division prepared 450 000 square metres of sheet metal at a cost of $1 800 000.All the sheet metal was transferred to the Fabrication Division where additional operating costs of $1.50 per square metre were incurred.The 450 000 square metres of finished fabricated sheet metal products were sold for $3 875 000. Required: a.Determine the operating profit for each division if the transfer price from Raw Material to Fabrication is at a cost of $4 per square metre. b.Determine the operating profit for each division if the transfer price is $5 per square metre. c.Since the Raw Materials Division sells all of its sheet metal internally to the Fabrication Division,does the Raw Materials manager care what price is selected? Why? Should the Raw Materials Division be a cost centre or a profit centre under the circumstances? _____________________________________________________________________________________________ _____________________________________________________________________________________________

The Assembly Division of The Melbourne 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: Direct materials \ 40 Direct manufacturing labour 20 Variable factory overhead 12 Fixed factory overhead Total \ 112 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. _____________________________________________________________________________________________ _____________________________________________________________________________________________

The prices negotiated by two divisions of the same company usually have no specific relationship to either costs or market price.

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 -A disadvantage of using budgeted costs for transfer prices is that inefficiencies in actual costs can be passed along to the receiving division.

A profit centre is related to a decentralised unit,whereas a cost centre is related to a centralised unit.

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 -What is the transfer price per blade from the Bat Blade Division to the Assembly Division per blade if the transfer price per blade is 125% of full costs?

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 -If the Assembly Division sells 1000 air conditioners at a price of $750.00 per air conditioner to customers,what is the operating profit of both divisions together?

A company has a plant in a high tax jurisdiction that produces products for a facility in a low tax jurisdiction.Suggest a strategy,including transfer prices,which will result in the lowest tax for the overall corporation. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Answer the following questions using the information below: The Betashoe Company manufactures shoes.It has two divisions: the Sole Division and the Assembly Division.The Sole Division manufactures soles for the Assembly Division,which completes the manufacturing of the shoes and sells the completed product to retailers.The Sole Division 'sells' pairs of soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $20.(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 $7 per pair of shoes at 100 000 units. Costs per pair of soles are: Direct materials \ 4 Direct labour \ 3 Variable overhead \ 2 Division fixed costs \ 1 Assembly's costs per completed pair of shoes are: Direct materials \ 6 Direct labour \ 2 Variable overhead \ 1 Division fixed costs \ 7 -What is the transfer price per pair of shoes from the Sole Division to the Assembly Division per pair of soles if the transfer price per pair of soles is 125% of full costs?

Surveys indicate that decisions made most frequently at the corporate level are related to sources of supplies and products to manufacture.

The range over which two divisions will negotiate a transfer price is:

The seller of Product A has no idle capacity and can sell all it can produce at $20 per unit.Outlay cost is $4.Assuming the seller can sell internally,what is the opportunity cost?

An advantage of using budgeted costs for transfer pricing among divisions is that:

Bedtime Bedding Company manufactures pillows.The Cover Division makes covers and the Assembly Division makes the finished products.The covers can be sold separately for $5.00.The pillows sell for $6.00.The information related to manufacturing for the most recent year is as follows: Cover Division manufacturing costs \ 6000000 Sales of covers by Cover Division 4000000 Market value of covers transferred to Assembly 6000000 Sales of pillows by Assembly Division 7200000 Additional manufacturing costs of Assembly Division 1500000 Required: Compute the operating profit for each division and the company as a whole.Use market value as the transfer price.Are all managers happy with this concept? Explain. _____________________________________________________________________________________________ _____________________________________________________________________________________________

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

For each of the following,identify whether it BEST relates to market-based,cost-based,negotiated,or all types of transfer pricing. a.Bargaining between selling and buying units b.Budgeted costs c.145% of full costs d.Internal product transfers are required if goods are available internally e.Manufacturing costs plus marketing costs plus distribution costs plus customer service costs f.Price listed in a trade journal g.Selling price less normal sales commissions h.Variable manufacturing cost plus a mark-up