Accounting for Decision Making Essay

air Pricing1. Calculate the annex or decrease in profits for the three divisions and the conjunction as a whole (four separate computations) if the agreement is enforced. Explain your thought process, scuttlebutt on the situation, and make asuggestion based on the computations you fall in made. Given that we have the operating comprises of fragment C, we can account their loss from reduced output. In the case of Division A and Division B, the reduction in personify related to lower outside approach would be considered profit change. The proposal increases profit, but leaves Division C under-utilized. The frozen(p) greet of under utilization would have to be considered before I would suggest the Company go to the new proposal. My suggestion is to go out front with the new proposal and increase Division C output and convey to outside customers.2. Evaluate and discuss the implications of the following withdraw pricing policies. transportation system pricing policies shou ld include a fixed comprise portion of the privileged supplier to identify the true cost. take in taken by the indwelling supplier is overall confederacy profit. By using a threadbare costing process, the internal supplier would be expected to keep competency at standard. In this case. Division C had profit from part one hundred one at $ three hundred per unit and part 201 at $800 per unit. If the fixed cost of Division C were included in the transfer price, it would not be necessary to identify a profit per part. a. Transfer price = cost plus a mark-up for the selling division This form _or_ system of government 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 price = fair mart valueThis policy provide force profit to be declared at bottom the selling division and may or may not provide a means of tracking effi ciency. If the fair market value generates a mussiness of profit for the company this should be used. c. Transfer price = price negotiated by the managersSee more Unemployment problems and solutions essayThis is a policy that can make out challenging 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 ending price should be little than fair market value.3. Why is transfer pricing such a significant issue both from a financial and managerial prospect? From a financial perspective, transfer pricing can help modify 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 profit. It can progress to problems if one department is making more profit than another, unless it is clearly set as efficiency variance. In managerial accounting, when different divisions of a multi-entity company are in charge of their own profits, they are also amenable for their own Return on Invested Capital. Therefore, when divisions are required to transact 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 fall behind out they will either be buying for more than the prevail market price or selling below the market price, and this will affect their performance.Division C data 2012ProposedPartDMDLVOHTPAnVolCost of UnitUnit ProfitTotal Profit sightProfitLost Profit101$200$200$300$1,0003000$700$300$900,0002000$600,000$300,000201$300$300$600$2,0001000$1,200$800$800,000500$400,000$400,000$1,700,000$1,000,000$700,000101201 outback(a)RequiredUnit CostOutside $ProfitCurrentA300010004 000$900$900,000B100010002000$1,900$1,900,000C300010004000ProposedA200020004000$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$1,150,000 arising Investopedia.com