Survey of Accounting (Accounting I)
8th Edition
ISBN: 9781305961883
Author: Carl Warren
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 14, Problem 14.1C
To determine
Concept Introduction:
Transfer Price:
Transfer Price is a price at which one division of a company transfers its goods to another division of the same company.
Morals are judgments, standards, and rules of good conduct in the society. They guide people toward permissible behavior with regard to basic values.
To Indicate:
If it is ethical to force the division for a transfer price
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Sembotix Company has several divisions including a Semiconductor Division that sells semiconductors to both internal and external customers. The company’s X-ray Division uses semiconductors as a component in its final product and is evaluating whether to purchase them from the Semiconductor Division or from an external supplier. The market price for semiconductors is $100 per 100 semiconductors. Dave Bryant is the controller of the X-ray Division, and Howard Hillman is the controller of the Semiconductor Division. The following conversation took place between Dave and Howard:
Dave: I hear you are having problems selling semiconductors out of your division. Maybe I can help.
Howard: You’ve got that right. We’re producing and selling at about 90% of our capacity to outsiders. Last year, we were selling 100% of capacity. Would it be possible for your division to pick up some of our excess capacity? After all, we are part of the same company.
Dave: What kind of price could you give…
Sembotix Company has several divisions including a Semiconductor Division that sells semiconductors to both internal and external customers. The company's X-ray Division uses semiconductors as a component in its final product and is evaluating whether to purchase them from the Semiconductor Division or from an external supplier. The market price for semiconductors is $100 per 100 semiconductors. Dave Bryant is the controller of the X-ray Division, and Howard Hillman is the controller of the Semiconductor Division. The following conversation took place between Dave and Howard:
Dave: I hear you are having problems selling semiconductors out of your division. Maybe I can help.
Howard: You've got that right. We're producing and selling at about 90% of our capacity to outsiders. Last year we were selling 100% of capacity. Would it be possible for your division to pick up some of the excess capacity? After all, we are part of the same company.
Dave: What kind of price can you give me?…
Leapin’ Larry’s Pre-Owned Cars has two divisions, Operations and Financing. Operations is responsible for selling Larry’s inventory as quickly as possible and purchasing cars for future sale. Financing Division takes loan applications and packages loans into pools and sells them in the financial markets. It also services the loans. Both divisions meet the requirements for segment disclosures under accounting rules.
Operations Division had $74 million in sales last year. Costs, other than those charged by Financing Division, totaled $32 million. Financing Division earned revenues of $23 million from servicing loans and incurred outside costs of $24 million. In addition, Financing charged Operations $22 million for loan-related fees. Operations’s manager complained to Larry that Financing was charging twice the commercial rate for loan-related fees and that Operations would be better off sending its buyers to an outside lender.
Financing's manager replied that although commercial…
Chapter 14 Solutions
Survey of Accounting (Accounting I)
Ch. 14 - When the manager has the responsibility and...Ch. 14 - The Accounts Payable Department has expenses of...Ch. 14 - Division A of Kern Co. has sales of $350,000, cost...Ch. 14 - Division L of Liddy Co. has a return on investment...Ch. 14 - Which approach to transfer pricing uses the price...Ch. 14 - Prob. 1CDQCh. 14 - Prob. 2CDQCh. 14 - Prob. 3CDQCh. 14 - Prob. 4CDQCh. 14 - Weyerhaeuser developed a system that assigns...
Ch. 14 - What is the major shortcoming of using operating...Ch. 14 - Prob. 7CDQCh. 14 - In a decentralized company in which the divisions...Ch. 14 - Prob. 9CDQCh. 14 - Prob. 10CDQCh. 14 - Prob. 11CDQCh. 14 - Prob. 12CDQCh. 14 - Why would standard cost be a more appropriate...Ch. 14 - Prob. 14CDQCh. 14 - Budget performance reports for cost centers...Ch. 14 - Divisional income statements The following data...Ch. 14 - Prob. 14.3ECh. 14 - Prob. 14.4ECh. 14 - Service department charges In divisional income...Ch. 14 - Service department charges and activity bases...Ch. 14 - Divisional income statements with service...Ch. 14 - Corrections to service department charges Panda...Ch. 14 - Profit center responsibility reporting On-Demand...Ch. 14 - Prob. 14.10ECh. 14 - Prob. 14.11ECh. 14 - Prob. 14.12ECh. 14 - Profit margin, investment turnover, and return on...Ch. 14 - Prob. 14.14ECh. 14 - Determining missing items in return on investment...Ch. 14 - Prob. 14.16ECh. 14 - Prob. 14.17ECh. 14 - Prob. 14.18ECh. 14 - Budget performance report for a cost center Sneed...Ch. 14 - Budget performance report for a cost center Sneed...Ch. 14 - Profit center responsibility reporting A-One...Ch. 14 - Profit center responsibility reporting A-One...Ch. 14 - Profit center responsibility reporting A-One...Ch. 14 - Prob. 14.3.1PCh. 14 - Divisional income statements and return on...Ch. 14 - Prob. 14.3.3PCh. 14 - Prob. 14.4.1PCh. 14 - Prob. 14.4.2PCh. 14 - Prob. 14.4.3PCh. 14 - Effect of proposals on divisional performance A...Ch. 14 - Prob. 14.4.5PCh. 14 - Prob. 14.5.1PCh. 14 - Prob. 14.5.2PCh. 14 - Prob. 14.5.3PCh. 14 - Prob. 14.5.4PCh. 14 - Prob. 14.6.1PCh. 14 - Prob. 14.6.2PCh. 14 - Prob. 14.6.3PCh. 14 - Prob. 14.6.4PCh. 14 - Prob. 14.6.5PCh. 14 - Balanced scorecard American Express Company (AXP)...Ch. 14 - Balanced scorecard Several years ago. United...Ch. 14 - Balanced scorecard Delta Air Lines, Inc. (DAL)...Ch. 14 - Balanced scorecard Costco Wholesale Corporation...Ch. 14 - Prob. 14.5MBACh. 14 - Prob. 14.1CCh. 14 - Prob. 14.2CCh. 14 - Prob. 14.3.1CCh. 14 - Prob. 14.3.2CCh. 14 - Prob. 14.3.3CCh. 14 - Prob. 14.3.4CCh. 14 - Prob. 14.4.1CCh. 14 - Prob. 14.4.2CCh. 14 - Prob. 14.4.3CCh. 14 - Prob. 14.4.4CCh. 14 - Prob. 14.5.1CCh. 14 - Prob. 14.5.2CCh. 14 - Prob. 14.5.3CCh. 14 - Prob. 14.5.4CCh. 14 - Prob. 14.5.5CCh. 14 - Prob. 14.5.6C
Knowledge Booster
Similar questions
- Leapin’ Larry’s Pre-Owned Cars has two divisions, Operations and Financing. Operations is responsible for selling Larry’s inventory as quickly as possible and purchasing cars for future sale. Financing Division takes loan applications and packages loans into pools and sells them in the financial markets. It also services the loans. Both divisions meet the requirements for segment disclosures under accounting rules. Operations Division had $32 million in sales last year. Costs, other than those charged by Financing Division, totaled $18 million. Financing Division earned revenues of $9 million from servicing loans and incurred outside costs of $10 million. In addition, Financing charged Operations $8 million for loan-related fees. Operations’s manager complained to Larry that Financing was charging twice the commercial rate for loan-related fees and that Operations would be better off sending its buyers to an outside lender. Financing's manager replied that although commercial rates…arrow_forwardABC Limited operates its business as one of the leading clothing wholesalers in the region and sells its clothes to retailers. You recently joined this wholesaler for a short project where your primary responsibility is to analyse their transaction process system critically. For this purpose, you are provided with the description of various business activities of the following four departments (also see Figure 1.1 on the next page): (1) Sales Department, (2) Accounting Department, (3) Warehouse/Shipping, and (4) Mailroom. The sales department of ABC Limited has a part-time sales clerk, Miss Emma, who works on the commissions. Miss Emma encourages its customers to forward the orders in any form, including mail, e-mail or fax (recall our discussion on the revenue cycle during the interactive tutorial for week 4). Miss Emma approves the credit sales and calculates commission and discounts. Then, she records the sales in the sales journal from the PC in the sales department. After…arrow_forwardAssume you work as an accountant in the merchandising division of a large public company thatmakes and sells athletic clothing. To encourage the merchandising division to earn as much profiton each individual sale as possible, the division manager’s pay is based, in part, on the division’sgross profit percentage. To encourage control over the division’s operating expenses, the manager’s pay also is based on the division’s net income.You are currently preparing the division’s financial statements. The division had a good year,with sales of $100,000, cost of goods sold of $50,000, sales returns and allowances of $6,000, salesdiscounts of $4,000, and salaries and wages expenses of $30,000. (Assume the division does notreport income taxes.) The division manager stresses that “ it would be in your personal interest ” toclassify sales returns and allowances and sales discounts as selling expenses rather than as contrarevenues on the division’s income statement. He justifies this “friendly…arrow_forward
- Armada Shipping is a global logistics company. The company is organized into two divisions: Contracts and Retail. The Contracts Division, which is by far the larger division, handles customers who have regular shipping requirements and have signed contracts specifying costs and schedule for up to one year. The Retail Division handles shipments for customers who have only occasional shipping requirements and pay on an as-used basis. Billing for all customers is handled by the corporate Accounts Receivable Department. Accounts Receivable performs two major activities: billing and accounts. Billing refers to preparing and sending the bills as well as processing the payments. Accounts refers to establishing accounts, ensuring credit status, following up on collection, and so on. The costs of the Accounts Receivable Department are allocated to the two divisions based on the number of bills prepared. The manager of the Contracts Division has complained that the allocated costs from Accounts…arrow_forwardCathy’s Classic Clothes is a retailer that sells to professional women in the northeast. The firm leases space for stores in upscale shopping centers, and the organizational structure consists of regions, districts, and stores. Each region consists of two or more districts; each district consists of three or more stores. Each store, district, and region has been established as a profit center. At all levels, the company uses a responsibility-accounting system focusing on information and knowledge rather than blame and control. Each year, managers, in consultation with their supervisors, establish financial and nonfinancial goals, and these goals are integrated into the budget. Actual performance is mea-sured each month.The New England Region consists of the Coastal District and the Inland District. The Coastal District includes the New Haven, Boston, and Portland stores. The Coastal District’s performance has not been up to expectations in the…arrow_forwardArmada Shipping is a global logistics company. The company is organized into two divisions: Contracts and Retail. The Contracts Division, which is by far the larger division, handles customers who have regular shipping requirements and have signed contracts specifying costs and schedule for up to one year. The Retail Division handles shipments for customers who have only occasional shipping requirements and pay on an as-used basis. Billing for all customers is handled by the corporate Accounts Receivable Department. Accounts Receivable performs two major activities: billing and accounts. Billing refers to preparing and sending the bills as well as processing the payments. Accounts refers to establishing accounts, ensuring credit status, following up on collection, and so on. The costs of the Accounts Receivable Department are allocated to the two divisions based on the number of bills prepared. The manager of the Contracts Division has complained that the allocated costs from Accounts…arrow_forward
- Manning Systems is a commercial software vendor that sells billing and other financial software to companies around the globe. Manning operates a centralized call center for customer support calls. Costs associated with use of the center are charged to the division with primary responsibility for the client. There are four geographical divisions: North America (NA), Central and South America (SA), Europe, and Asia-Pacific (APAC). The allocation is based on the length of time of calls made (Minutes). Idle time of the reservation agents and the fixed cost of the equipment are allocated based on the number of calls received (Calls) from clients in each division. Due to recent increased competition in the commercial software business, Manning has decided that it is necessary to better allocate its costs in order to price its services competitively and profitably. During the most recent period for which data are available, the use of the call center for each division was as follows:…arrow_forwardThe Mandalorian Company has two divisions, Production and Marketing. Production manufactures Beskar Head Armour for Knights of the Old Republic, which it sells to both the Marketing Division and to other retailers (the latter under a different brand name). Marketing operates several small armour stores in shopping centers throughout Corruscant. Marketing sells both Beskar Head Armour and other brands. Relevant facts for Production are as follows: Sales Price to Outsiders.............................................................$28.50 per Pcs Variable Cost to Produce...........................................................$18.00 per Pcs Fixed Costs ................................................................................$100,000 per Month The following data pertain to the sale of Mandalorian Company Beskar Head Armour by Marketing: Marketing is operating far below its capacity. Sales…arrow_forwardThe Mandalorian Company has two divisions, Production and Marketing. Production manufactures Beskar Head Armour for Knights of the Old Republic, which it sells to both the Marketing Division and to other retailers (the latter under a different brand name). Marketing operates several small armour stores in shopping centers throughout Corruscant. Marketing sells both Beskar Head Armour and other brands. Relevant facts for Production are as follows: Sales Price to Outsiders.............................................................$28.50 per Pcs Variable Cost to Produce...........................................................$18.00 per Pcs Fixed Costs ................................................................................$100,000 per Month The following data pertain to the sale of Mandalorian Company Beskar Head Armour by Marketing: Marketing is operating far below its capacity. Sales…arrow_forward
- World View Outfitters operates a large outdoor clothing and equipment store with three main product lines: clothing, equipment, and shoes. World View Outfitters operates at capacity and allocates selling, general, and administration (S, G & A) costs to each product line using the cost of merchandise of each product line. The company wants to optimize the pricing and cost management of each product line and is wondering if its accounting system is providing it with the best information for making such decisions. Store manager Abe Barry gathers the following information regarding the three product lines: For2017,World View Outfitters budgets the following selling, general, and administration costs: 1. Suppose World View Outfitters uses cost of merchandise to allocate all S, G & A costs. Prepare budgeted product-line and total company income statements. 2. Identify an improved method for allocating costs to the three product lines. Explain. Use the…arrow_forwardRaymack Manufacturing, headquartered in Michigan, is a manufacturer of equipment component parts used in a number of industries. The company’s financial statements and related footnotes contain the required segment reporting. The financial statements are being analyzed by a bank lending officer to whom you report. The officer has asked you to respond to each of the following questions regarding segment reporting with a brief memo.1. Two of Raymack’s reportable segments deal with components for fluid movement machinery. One of the segments designs and installs manufactured components, and the other segment inspects, maintains, and repairs the installed components. Why might these activities constitute two separate operating segments, when in fact they both have to do with components for fluid movement machinery?2. The total net sales for all reportable and nonreportable segments is $789 million. After reducing reported consolidated revenues for any items that might relate to items not…arrow_forwardGoodworks Software operates stores within five regions. Regional managers are held accountable for marketing, advertising, and sales decisions, and all costs incurred within their region. In addition, regional managers decide whether new stores will open, where the stores will be located, and whether the stores will lease or purchase the facilities. Store managers, in contrast, are accountable for marketing, advertising, and sales decisions, and costs incurred within their stores. Ideally, on the basis of this information, what type of responsibility center should the software company use to evaluate its regions and stores? (1) Regions; (2) Stores (1) Profit center; (2) Profit center (1) Profit center; (2) Revenue center (1) Investment center; (2) Cost center (1) Investment center; (2) Profit center (1) Profit center; (2) Cost centerarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub