28 - 22-30 (25 min.) Goal congruence problems with...

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Unformatted text preview: 22-30 (25 min.) Goal congruence problems with cost-plus transferpricing methods, dual pricing system (continuation of 22-29). Two examples of goal congruence problems are: a. b. Processing Division manager using an outside supplier when Oceanic Products operating income is maximized by buying from Harvesting Division. Harvesting Division manager selling to an outside purchaser when it is better for Oceanic Products to process internally. 2. Transfer into buying division at market price Harvesting Division to Processing Division = $1.00 per pound of raw tuna Transfer out to selling division at 150% of full costs Harvesting Division to Processing Division = 1.5 ($0.20 + $0.40) = $0.90 per pound of raw tuna Tuna Harvesting Division Division revenues, $0.90 1,000 Division variable costs, $0.20 1,000 Division fixed costs, $0.40 1,000 Division total costs Division operating income Tuna Processing Division Division revenues, $5.00 500 Transferred-in costs, $1.00 1,000 Division variable costs, $0.80 500 Division fixed costs, $0.60 500 Division total costs Division operating income $2,500 $1,000 400 300 1,700 $ 800 $ 900 200 400 600 $ 300 3. Division Operating Income Tuna Harvesting Division Tuna Processing Division Oceanic Products $ 300 800 $1,100 The overall company operating income from harvesting 1,000 pounds of raw tuna and its processing is $1,200 (see Problem 22-29, requirement 1). A dual transfer-pricing method entails using different transfer prices for transfers into the buying division and transfers out of the supplying division. As a result, the sum of division operating incomes do not equal the total company operating income. ...
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This note was uploaded on 02/05/2012 for the course ACCOUNTING acct 504 taught by Professor Dehmal during the Spring '10 term at DeVry Pittsburgh.

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28 - 22-30 (25 min.) Goal congruence problems with...

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