Module 3 - CaseTransfer Pricing and Responsibility CentersAssignment OverviewCoffee Maker's Incorporated (CMI)Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and Division B purchases Part 201 from a third division, C. Both divisions need the parts for products that they assemble. The intercompany transactions have remained constant for several years.Recently, outside suppliers have lowered their prices, but Division C refuses to do so. In addition, all division managers are feeling the pressure to increase profit. Managers of divisions A and B would like the flexibility to purchase the parts they need from external parties at a lower cost and increase profitability.The current pattern is thatDivision A purchases 2,700 units of product part 101 from Division C (the supplying division) and another 1,300 units from an external supplier.Division B purchases 1,100 units of Part 201 from Division C and another 700 units from an external supplier.Note that both divisions A and B purchase the needed supplies from both the internal source and an external source at the same time.The managers for divisions A and B are preparing a new proposal for consideration.Division C will continue to produce Parts 101 and 201. All of its production will be sold to Divisions A and B. No other customers are likely to be found for these products in the short term, given that supply is greater than demand in the market.Division A will buy 2,000 units of Part 101 from Division C at the existing transfer price; and2,000 units from an external supplier at the market price of $900 per unit.Division B will buy 900 units of Part 201 from Division C at the existing transfer price; and900 units from an external supplier at $1,800 per unit.Division C Data Based on the Current Agreement Part 101 201 Annual volume (units) 2,700 1,100 Transfer price/unit $1,000 $2,000 Variable expenses/unit $700 $1,200 The fixed overhead for Division C is $1,200,000.Case AssignmentRequired:Computations (use Excel)Set up a table similar the one below to compute the difference between the current situation and the proposal for Divisions A and B. Division A Current Situation Proposal No. of Units Purchase Price Total Purchases No. of Units Purchase Price Total Purchases Internal purchases 2,700 $ 2,000 $ External purchases 1,300 2,000 Total cost for Part 101 $ $ Savings to Div. A $ Compute the operating income for Division C under the current agreement and the proposed agreement.Is the revised agreement a good idea? Support your answer with computations.Memo (use Word)Write a 4- or 5-paragraph memo to the division manager explaining the analysis performed. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading.Short Essay (use Word)Start with an introduction and end with a summary or conclusion. Use headings.Evaluate and discuss the implications of the following transfer pricing policies:Transfer price = cost plus a mark-up for the selling divisionTransfer price = fair market valueTransfer price = price negotiated by the managersWhy is transfer pricing such a significant issue both from a financial and managerial perspective?Assignment ExpectationsEach submission should include two files: (1) An Excel file and (2) a Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner.

In the first part of your initial post, you will need to introduce the Abercrombie & Fitch lawsuit. In this introduction, you will also need to (1) articulate the freedoms that companies in the United States enjoy given our relatively-free market system and (2) present the Title VII regulations concerning employment discrimination. These will provide the setting for you to be able to examine how the nation’s laws affect the hiring practices of Abercrombie & Fitch and other companies whose hiring policy includes a particular aesthetic for employees. In the second part of your initial post, present your analysis of this case in a way that identifies which entities (Abercrombie & Fitch as a corporation, the economic system in the USA, the regulatory control of the state, or all of these) have a role in the problem that led to the lawsuit under examination. In your analysis, you must assess the positive or negative effects of the interplay between business activity and one of the following: the free-market system, advertising, hiring regulations, or corporate social responsibility. Your focus must be an ethical analysis of this interplay. Be sure to clearly identify the ethical theory that you are applying in your analysis, and to support your analysis by reliable and/or scholarly sources. Your initial post should be at least 350 words in length and have citations and references in APA notation. It should address the prompt in its entirety. This means that you should not split your response to the prompt in multiple posts. Your examination should be both thorough and succinct. This is a combination that demands time and thought, so give yourself sufficient time to draft and revise.