Managerial Accounting Review Ch 8 12

Topics: Costs, Variable cost, Price Pages: 28 (1750 words) Published: March 28, 2015
Agenda
– Submit term projects to TURNITIN ASAP
– Assignment #2 due April 1st 1159pm
• List the coauthor’s name in the subject line.

• Teaching Evaluation
• Transfer pricing (cont.)
– Stanco Inc.

• Review chapters 11 and 12 & the practice final
– Practice Q1 and Q2

• Review chapters 8 and 9 and the practice final
– Practice Q3 and Q4
ACTG 2020

Week 11

1

• Online Course Evaluations (ONCE)/ &
Seymour Schulich Teaching Excellence
Awards (Schulich TEA)
– TEA: http://schulich.yorku.ca/tea.
– ONCE: http://courseevaluations.yorku.ca





ACTG 2020

2020 class: Sylvia Hsu
2020 R (2:30pm): Lab, Marisa Morriello
2020 V (8:30am): Lab, Marisa Morriello
2020 W (11:30am): Lab, Iva Charlopova

Week 11

2

Stanco Inc.
• Groups in the Right: Assume the role of Manager of the
Electronics Division; evaluate the impact of supplying XL5
internally for $9 on Division’s profitability
– Evaluate the impact of supplying XL5 internally for $12.5 on Division’s profitability

• Groups in the Left: Assume the role of Manager of the Clock Division; evaluate the impact of buying XL5 for $12.5 internally on profitability
– Manager of the Clock Division; evaluate the impact of buying XL5 for $9 internally on profitability

• CEO of Stanco Inc.: evaluate the impact of the internal
transfer on firm’s profitability if the transfer price is $9 – CEO of Stanco Inc.: evaluate the impact of the internal transfer on firm’s profitability if the transfer price is or $12.5
– How do we prepare the financial analysis for Stanco Inc.?

ACTG 2020

Week 11

3

LO10

TRANSFER PRICING
• The transfer price affects the income of the
buying and selling units and therefore affects: (1)
the performance evaluations of both managers
and (2) the operating decisions that the
managers might make.
– If managerial decisions are unaffected and there are
no tax complexities involving multinational companies,
the transfer price has no impact on overall company
profit.

ACTG 2020

Week 11

4

Setting Transfer Prices
The value placed on transfer goods is
used to make it possible to transfer
goods between divisions while allowing
them to retain their autonomy.

ACTG 2020

Week 11

5

Goal Congruence
The
The ideal
ideal transfer
transfer price
price allows
allows
each
each division
division manager
manager to
to make
make
decisions
decisions that
that maximize
maximize the
the
company’s
company’s profit,
profit, while
while
attempting
attempting to
to maximize
maximize his/her
his/her
own
own division’s
division’s profit.
profit.
ACTG 2020

Week 11

6

Market-Based Transfer Prices
As
Asaageneral
general rule,
rule, aamarket-based
market-based transfer
transfer pricing
pricing
policy
policycontains
contains the
thefollowing
followingguidelines
guidelines.... ..
1.
1. The
Thetransfer
transfer price
price is
isusually
usuallyset
set at
at aa
discount
discountfrom
fromthe
the cost
cost to
to acquire
acquire the
theitem
item
on
onthe
theopen
open market.
market.
2.
2. The
Theselling
selling division
division may
mayelect
elect to
to transfer
transfer or
or
to
tocontinue
continueto
to sell
sellto
tothe
theoutside.
outside.

ACTG 2020

Week 11

7

Market-Based Transfer Prices
A market price (i.e., the price charged
for an item on the open market) is
often regarded as the best approach
to the transfer pricing problem.
1. A market price approach works
best when the product or
service is sold in its present
form to outside customers and
the selling division has no idle
capacity.
2. A market price approach does
not work well when the selling
division has idle capacity.
ACTG 2020
Week 11
WHY?

8

Cost-Based Transfer Prices
Some companies use the following
measures of cost to establish transfer
prices . . .
– Variable cost
– Full absorption cost


ACTG 2020

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