Accounting for Decision Making Essay

polish off Pricing1. Calculate the increase or decrease in profits for the three courses and the company as a whole (four separate computations) if the agreement is enforced. Explain your thought process, comment on the situation, and make a adumbrateion based on the computations you have made. Given that we have the operating termss of subdivision C, we peck calculate their loss from reduced output. In the case of cleavage A and disagreement B, the reduction in cost related to lower outside cost would be considered profit change. The proposal increases profit, but leaves Division C under-utilized. The fixed cost of under utilization would have to be considered before I would suggest the Company go to the new proposal. My suggestion is to go ahead with the new proposal and increase Division C output and sell to outside customers.2. Evaluate and discuss the implications of the following channel pricing policies. conveying pricing policies should include a fixed cost portion o f the internal supplier to identify the truthful cost. meshwork taken by the internal supplier is overall company profit. By using a standard costing process, the internal supplier would be expected to keep efficiency at standard. In this case. Division C had profit from part 101 at $300 per unit and part 201 at $800 per unit. If the fixed cost of Division C were included in the transfer bell, it would not be needed to identify a profit per part. a. Transfer worth = cost plus a mark-up for the selling division This policy provides contribution to the cost of the selling division. The mark up must be appropriate to nulify the cost of the selling department, but not to make the selling department a high proofit center. b. Transfer cost = fair market valueThis policy pass on force profit to be declared in spite of appearance the selling division and may or may not provide a means of track efficiency. If the fair market value generates a lot of profit for the company this shoul d be used. c. Transfer price = price negotiated by the managersSee more Unemployment problems and solutions essayThis is a policy that washbowl create repugn and meaningful relationships between departments. Since the price is negotiated, the result would be benefitial for the company and would encourage competition between divisions. Although the last price should be less than fair market value.3. Why is transfer pricing such a significant issue both from a financial and managerial perspective? From a financial perspective, transfer pricing can help purify profits and allows the company more control of quality which would improve profits. It does casue additional financial reportingfor the selling division. From a managerial perspective transfer pricing can create a competitive environment within the company resulting in lower cost and higher(prenominal) profit. It can cause problems if one department is making more profit than another, unless it is clearly identified as effic iency variance. In managerial accounting, when dissentent divisions of a multi-entity company are in charge of their avouch profits, they are also responsible for their own Return on Invested Capital. Therefore, when divisions are required to complete with each other, a transfer price is used to determine costs. Transfer prices tend not to differ much from the price in the market because one of the entities in such a transaction will lose out they will either be buying for more than the prevailing market price or selling below the market price, and this will affect their performance.Division C data 2012Proposed get aroundDMDLVOHTPAnVolCost of UnitUnit ProfitTotal ProfitVolumeProfitLost Profit101$200$200$300$1,0003000$700$300$900,0002000$600,000$300,000201$300$300$600$2,000 gibibyte$1,200$800$800,000500$400,000$400,000$1,700,000$1,000,000$700,000101201OutsideRequiredUnit CostOutside $ProfitCurrentA300010004000$900$900,000B100010002000$1,900$1,900,000C300010004000ProposedA2000200040 00$1,800,000$900,000B50015002000$2,850,000$950,000C20005002500Change in ProfitFollow formula path for further explanationDivision A$900,000Division B$950,000Division C($700,000)Total Company$1,150,000Source Investopedia.com