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Class+7+Learning+Objectives - Summary of Key Learning...

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Summary of Key Learning Objectives for Chemical Bank & Sub-Micron Devices With the Chemical Bank and Sub-Micron Devices Cases we consider a new form of cost allocation, specifically, the transfer of costs between decentralized divisions of the firm using a quasi-market approach known as “transfer pricing.” The case illustrates: 1. Alternative performance measures and compensation contracts for profit and investment centers; 2. The difference between cost centers, profit centers and investment centers; 3. That transfer prices may be set to achieve several organizational objectives, including: a. Encouraging managers to make decisions that are in the interest of the firm b. Providing information for performance evaluation c. Minimizing total tax obligations for the firm when divisions of the firm face different regional tax liabilities 4. A new perspective on how cost allocations and product costing practices can interact with transfer pricing to produce dysfunctional results (e.g., utilization of the ASICS plant).
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