RESPONSIBILITY CENTERS AND TRANSFER PRICING

RESPONSIBILITY CENTERS AND TRANSFER PRICING

Order ID	53563633773
Type	Essay
Writer Level	Masters
Style	APA
Sources/References	4
Perfect Number of Pages to Order	5-10 Pages

Description/Paper Instructions

 

Module 3: Case Study
ASSIGNMENT ON TRANSFER PRICING AND RESPONSIBILITY CENTERS

Coffee Makers, Inc. is a company that specializes in the production of coffee.

A dispute has erupted between three CMI divisions. Part 101 is purchased by Division A, and Part 201 is purchased by Division B from a third division, C. Both divisions require the components for the products they assemble. For several years, the intercompany transactions have remained consistent.

Outside suppliers have recently reduced their prices, but Division C refuses to follow suit. Furthermore, all division managers are under pressure to boost profits. Managers in divisions A and B would like the ability to purchase parts from third parties at a lower cost in order to boost profits.

The current pattern is as follows:

Division A buys 2,700 units of product part 101 from Division C (the supplying division) and 1,300 units from a third party.
Division B buys 1,100 Part 201 units from Division C and another 700 from an outside supplier.
It’s worth noting that divisions A and B buy supplies from both an internal and an external source at the same time.

A new proposal is being prepared by the managers of divisions A and B for consideration.

Parts 101 and 201 will continue to be produced by Division C. Divisions A and B will receive all of its output. Given that supply exceeds demand in the market, no other customers are likely to be found for these products in the near future.
Division A will purchase 2,000 units of Part 101 from Division C at the current transfer price, as well as 2,000 units from an external supplier for $900 per unit.
Division B will purchase 900 units of Part 201 from Division C at the current transfer price, as well as 900 units from an external supplier for $1,800 each.

Based on the Current Agreement, Division C Data

Part 101 201
2,700 1,100 annual volume (units)
$1,000 per unit for transfer
$2,000

$700 $1,200 in variable expenses per unit

Division C has a fixed overhead of $1,200,000.

Assignment of a Case

Required:

Calculations

To calculate the difference between the current situation and the proposal for Divisions A and B, set up a table similar to the one below.
A Division
Proposal for the Present Situation
Total Purchases No. of Units Purchase Price
Number of Units
Total Purchases Purchase Price
Purchases made internally 2,700 $ 2,000 $ Purchases made externally 1,300 $
2,000
Part 101’s total cost
$
$

Calculate the operating income for Division C under the current agreement and the proposed agreement using the savings to Div. A $ method.
Is it a good idea to revise the agreement? Computes should be used to back up your answer.

Keep in mind

Write a four- or five-paragraph memo to the division manager outlining the findings. Begin with an introduction and conclude with a suggestion. There should be a heading for each of the four or five paragraphs.

a brief essay

An introduction should come first, followed by a summary or conclusion. Make use of headings.

Consider the following transfer pricing policies and their implications:

Cost plus a mark-up for the selling division equals the transfer price.
The transfer price is equal to the fair market value.
The transfer price is the price agreed upon by the managers.

Why is transfer pricing such a big deal from both a financial and a management standpoint?

Expectations for the Assignment

Each entry should consist of two files: (1) an Excel spreadsheet and (2) a Word document. The memo appears first in the Word document, followed by a short essay. Assume a savvy business audience and adhere to the required format and length. Businesspeople are busy, and they expect information to be presented in a clear and concise manner.

Reference

Reading Requirements

The role of responsibility accounting and responsibility centers is discussed in this module. Explore these topics in greater depth while keeping the six goals in mind. To learn more about each topic, click on one of the three arrows below:

Make Sure You’ve Got It

Examine your comprehension to ensure that you have a firm grasp on the background information. If you’re having trouble grasping the concepts, go back over some of the material or look at the optional resource for more examples. To check your progress, click on the quiz icon to take a 20-question true-or-false self-study quiz. If you’re not happy with your grade, go over some of the material again. Review the materials listed under optional reading at the bottom of this page for more in-depth information.

Last Thoughts

A responsibility center is a part or subunit of a business for which a manager is in charge. A logical source for determining responsibility centers is the company’s detailed organization chart. Departments within a company are the most common responsibility centers.
The manager of a responsibility center is referred to as a cost center when he or she can only control costs. The responsibility center is known as a profit center when a manager can control both costs and revenues. An investment center is a responsibility center where a manager has authority and responsibility for costs, revenues, and investments.

Because of the existence of responsibility centers, an internal price must be established for the transfer of parts, goods, and services between units and responsibility centers. Transfer prices are contentious because management intervenes by enacting policies that impact a responsibility center’s or unit’s revenue.

Additional considerations apply when transferring between international jurisdictions. Pricing strategies are influenced not only by accounting rules, but also by income taxation and duties. Most countries have regulations in place to help prevent people from using this pricing method to avoid paying taxes or engage in other unethical or illegal activities.

Reading (Optional)

Refer to Dr. Walther’s accounting text and videos for more information.

L. Walther Reporting to Support Managerial Decisions (Chapter 23).

ATTRIBUTIONS AND LICENSES

 

RUBRIC QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points:  Student failed to submit the final paper. 20 points out of 50:  The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50:  The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately.  Elements of the required response may also be lacking. 40 points out of 50:  The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples.  The answer is complete. 50 points:  The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples.  No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points:  Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points:  Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points:  References to scholarly sources are occasionally given; many statements seem unsubstantiated.  Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points:  Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented.  APA 6th Edition is used with only a few minor errors.  There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points:  Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented.  APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points:  Student failed to submit the final paper. 5 points out of 20:  The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors  10 points out 20:  The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20:  The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points:  The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. Structure of the Paper (worth 10% of total points) Zero points:  Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements.  The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper.
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