Description
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 division
- Transfer price = fair market value
- Transfer price = price negotiated by the managers
Why is transfer pricing such a significant issue both from a financial and managerial perspective?
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Explanation & Answer
Thank you so much
Division A
internal purchase
external purchase
Total cost for part 101
savings to div.A
No. of units
2700 $
1300 $
Cuurrent situation
price
Total purchase
1,000.0 $ 2,700,000.0
900.0 $ 1,170,000.0
$ 3,870,000.0
proposal
No. of units
2000
2000
No. of units
1100 $
700 $
Cuurrent situation
price
Total purchase
2,000.0 $ 2,200,000.0
1,800.0 $ 1,260,000.0
$ 3,460,000.0
No. of units
900
900
Division B
internal purchase
external purchase
Total cost for part 101
savings to div.A
Division C
part 101
part 201
operating income
proposal
Current situation
No. of units Variable expenses/unit
total cost
fixed overhead
2700 $
700.0
$1,890,000 $ 1,200,000.0
1100 $
1,200.0
$1,320,000
$
$
proposal
price
Total purchase
1,000.0 $
2,000,000.0
900.0 $
1,800,000.0
$
3,800,000.0
$
70,000.0
$
$
proposal
price
Total purchase
2,000.0 $
1,800,000.0
1,800.0 $
1,620,000.0
$
3,420,000.0
$
40,000.0
on
proposal
transfer price/unit total transfer price No. of units
Variable expenses/unittotal cost
$
1,000.0 $
2,700,000.0
2000 $
70...