transfer pricing , Western States Supply, Inc. (WSS), consists of three, Managerial Accounting

transfer pricing , Managerial Accounting

Assignment Help:

Western States Supply, Inc. (WSS), consists of three divisions—California, Northwest, and Southwest—that operate as if they were independent companies. Each division has its own sales force and production facilities. Each division manager is responsible for sales, cost of operations, acquisition and financing of divisional assets, and working capital management. WSS corporate management evaluates the performance of each division and its managers on the basis of ROI.
Southwest has just been awarded a contract for a product that uses a component manufactured by outside suppliers as well as by Northwest, which is operating well below capacity. Southwest used a cost figure of $37 for the component in preparing its bid for the new product. Northwest supplied this cost figure in response to Southwest''s request for the average variable cost of the component; it represents the standard variable manufacturing cost and variable marketing costs.
Northwest''s regular selling price for the component that Southwest needs is $65. Northwest''s management indicated that it could supply Southwest the required quantities of the component at the regular selling price less variable selling and distribution expenses. Southwest management responded by offering to pay standard variable manufacturing cost plus 25 percent.
The two divisions have been unable to agree on a transfer price. Corporate management has never established a transfer price policy. The corporate controller suggested a price equal to the standard full manufacturing cost (that is, no selling and distribution expenses) plus a 20 percent markup. The two division managers rejected this price because each considered it grossly unfair.
The unit cost structure for the Northwest component and the suggested prices follow.

Required
a. Discuss the effect that each of the proposed prices could have on the attitude of Northwest''s management toward intracompany business.
b. Is the negotiation of a price between Northwest and Southwest a satisfactory method to solve the transfer price problem? Explain your answer.
c. Should WSS''s corporate management become involved in this transfer price controversy? Explain your answer.

Write Your Message!

Name

Email id

Message

Verfication Code

User Account

All Pages

transfer pricing , Managerial Accounting

Related Discussions:- transfer pricing

Calculate the overall profit if the offer is accepted, Question : (a) ...

Determine the objectives of ratio analysis, Objectives of ratio analysis ...

Operating leverage, How do you compare two companies operating leverage? Mu...

Explain the terms - cost object and activities, Explain the terms - Cost ob...

What are the resons to use variance analysis, What are the Resons to use Va...

What do you understand by marging of safety, Question: (a) A retail sto...

Steps making decisiontree, Steps making DecisionTree A decision tree is...

Determine the absolute liquid ratio - liquidity ratios, Absolute liquid rat...

Incremental budgeting, the suitability of incremental budgeting to a stable...

Linear programming, what areas can linear programming be applied in manager...

Write Your Message!

Featured Services

Online Tutoring

Project Development

Exam Preparation

Course Help

Assignment Help

Popular Subjects

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT