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

Answer the following questions using the information below: Plish Company manufactures only one type of washing machine and has two divisions, the Compressor Division, and the Fabrication Division. The Compressor Division manufactures compressors for the Fabrication Division, which completes the washing machine and sells it to retailers. The Compressor Division "sells" compressors to the Fabrication Division. The market price for the Fabrication Division to purchase a compressor is $40.00. (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 Fabrication Division are assumed to be $7.50 per unit at 10,000 units. Compressor's costs per compressor are: Direct materials \ 15.00 Direct labor \ 7.25 Variable overhead \ 3.00 Division fixed costs \ 7.50 Fabrication's costs per completed air conditioner are: Direct materials \ 150.00 Direct labor \ 62.50 Variable overhead \ 20.00 Division fixed costs \ 7.50 -What is the market-based transfer price per compressor from the Compressor Division to the Fabrication Division?

Line managers supervising individual refineries are concerned with ________.

Hybrid transfer prices can be arrived at through negotiations.

In markets that are not perfectly competitive,________.

Olive branch Company recently acquired an olive oil processing company that has an annual capacity of 2,000,000 liters and that processed and sold 1,400,000 liters last year at a market price of $4 per liter.The purpose of the acquisition was to furnish oil for the Cooking Division.The Cooking Division needs 800,000 liters of oil per year.It has been purchasing oil from suppliers at the market price.Production costs at capacity of the olive oil company,now a division,are as follows: Direct materials per liter \ 1.00 Direct processing labor 0.50 Variable processing overhead 0.24 Fixed processing overhead Total \ 2.14 Management is trying to decide what transfer price to use for sales from the newly acquired company to the Cooking Division.The manager of the Olive Oil Division argues that $4,the market price,is appropriate.The manager of the Cooking Division argues that the cost of $2.14 should be used,or perhaps a lower price,since fixed overhead cost should be recomputed with the larger volume.Any output of the Olive Oil Division not sold to the Cooking Division can be sold to outsiders for $4 per liter. Required: a.Compute the operating income for the Olive Oil Division using a transfer price of $4. b.Compute the operating income for the Olive Oil Division using a transfer price of $2.14. c.What transfer price(s)do you recommend? Compute the operating income for the Olive Oil Division using your recommendation.

________ occurs when a decision's benefits for one subunit is more than offset by the costs to the organization as a whole.

Answer the following questions using the information below: Timekeeper Corporation has two divisions, Distribution and Manufacturing. The company's primary product is high-end watches. Each division's costs are provided below: Manufacturing: Variable costs per unit \ 1.00 Fixed costs per unit \ 5.00 Distribution: Variable costs per unit \ 0.60 Fiæed costs per unit \ 0.40 The Distribution Division has been operating at a capacity of 4,000,000 units a week and usually purchases 2,000,000 units from the Manufacturing Division and 2,000,000 units from other suppliers at $9.00 per unit. -Assume 100,000 pounds are transferred from the Manufacturing Division to the Distribution Division for a transfer price of $8.00 per pound.The Distribution Division sells the 100,000 pounds at a price of $11.00 each to customers.What is the operating income of both divisions together?

Cost-based transfer prices are helpful when markets are not perfectly competitive.

The human resources systems is a part of the formal management control systems of an organization.

If the Polishing Division sells 100,000 pairs of shoes at a price of $120 a pair to customers,what is the operating income of both divisions together?

The full cost plus a markup transfer-pricing method can sometimes lead to goal incongruence.

A transfer-pricing method leads to goal congruence when ________.

A company may choose to keep one set of accounting records for tax reporting and a second set for internal management reporting.

Why is decentralization costly?

The costs used in cost-based transfer prices ________.

Negotiated transfer prices are often employed when market prices are stable.

Transfer prices do not affect managers whose compensation is directly dependent on an organization's operating income because transfer prices affect only divisional profits and not the organization's profit.

The additional cost of producing and transferring the product or service is called variable manufacturing cost.

Dual pricing is not widely used.Explain its disadvantages.

Which of the following taxes does transfer pricing affect?