TRANSFER PRICING AND RESPONSIBILITY CENTERS

Coffee Maker's Incorporated (CMI)

Three non-locations of a CMI are concerned in a controversy. Non-location A dissipations Sinferior 101 and Non-location B dissipations Sinferior 201 from a third non-location, C. Twain non-locations want the magnitude for fruits that they convoke. The intercompany transactions enjoy remained faithful for distinct years.

Recently, after a whileout suppliers enjoy inferiored their figures, but Non-location C refuses to do so. In observation, all non-location superintendents are sensation the urgency to growth acquisition. Managers of non-locations A and B would approve the flexibility to dissipation the magnitude they want from outer sunderies at a inferior absorb and growth acquisitionability.

The vulgar exemplar is that

  • Division A dissipations 2,700 individuals of fruit sinferior 101 from Non-location C (the affording non-location) and another 1,300 individuals from an outer supplier.
  • Division B dissipations 1,100 individuals of Sinferior 201 from Non-location C and another 700 individuals from an outer supplier.
  • Note that twain non-locations A and B dissipation the wanted afford from twain the inner rise and an outer rise at the homogeneous occasion.

The superintendents for non-locations A and B are preparing a new offer for remuneration.

  • Division C earn live to result Magnitude 101 and 201. All of its fruition earn be sold to Divisions A and B. No other customers are approvely to be fix for these fruits in the defective order, loving that afford is superior than claim in the communicate.
  • Division A earn buy 2,000 individuals of Sinferior 101 from Non-location C at the stout remand figure; and
  • 2,000 individuals from an outer supplier at the communicate figure of $900 per individual.
  • Division B earn buy 900 individuals of Sinferior 201 from Non-location C at the stout remand figure; and
  • 900 individuals from an outer supplier at $1,800 per individual.

Division C Data Based on the Vulgar Agreement

Part101201Annual body (units)2,7001,100Transfer figure/unit$1,000$2,000Variable expenses/unit$700$1,200

The agricultural aloft for Non-location C is $1,200,000.

Case Assignment

Required:

Computations (use Excel)

  • Set up a consultation homogeneous the one inferiorneath to value the separation between the vulgar condition and the offer for Divisions A and B. 

Division ACurrent SituationProposalNo. of UnitsPurchase PriceTotal PurchasesNo. of UnitsPurchase PriceTotal PurchasesInternal dissipations2,700$2,000$External dissipations1,3002,000Total absorb for Sinferior 101$$Savings to Div. A$

  • Compute the at-liberty pay for Non-location C inferior the vulgar undertaking and the proposed undertaking.
  • Is the revised undertaking a good-tempered-tempered proposal? Support your tally after a while computations.

Memo (use Word)

Write a 4- or 5-paragraph memo to the non-location superintendent explaining the segregation performed. Start after a while an commencement and end after a while a recommendation. Each of the indecent or five paragraphs should enjoy a designation.

Short Essay (use Word)

Start after a while an commencement and end after a while a abridgment or misentry. Use designations.

Evaluate and sift-canvass the implications of the forthcoming remand pricing policies:

  • Transfer figure = absorb plus a mark-up for the selling non-location
  • Transfer figure = equitable communicate value
  • Transfer figure = figure negotiated by the superintendents

Why is remand pricing such a telling progeny twain from a financial and superintendential perspective?

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