Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 21 Jan 2018 My Price 8.00

American Motors, Inc

19-51    General Transfer-Pricing Rule; Goal Congruence American Motors, Inc., is divided, for performance-evaluation purposes, into several investment centers. The Automobile Division of American Motors purchases most of its transmission systems from another unit of the company. The Transmission Division’s incremental cost for manufacturing a standard transmission is approxi- mately $900 per unit. This division is currently working at 75 percent of capacity. The current mar- ket price for a standard transmission is approximately $1,250.

Required

1.    Using the general guideline equation presented in the chapter, what is the minimum price at which the Transmission Division would sell its output to the Automobile Division?

2.    Suppose now that American Motors requires that whenever divisions with excess capacity sell their out- put internally to other divisions of the company, they must do so at the incremental cost of the supply- ing (producing) division. Evaluate this transfer-pricing rule vis-à-vis each of the following objectives: autonomy, goal congruency, performance evaluation of the divisions, and motivation/incentive effects.

 

 

 

 

 

 

 

3.    If the two divisions of American Motors were to negotiate a transfer price, what is the likely range of pos- sible prices? Evaluate the use of a negotiated transfer price using the same objectives listed above in (2).

4.    Which, in your opinion, is the preferable transfer-pricing method—(2) or (3) above? Why?

(CMA Adapted)

Answers

Maurice Tutor
(5)
Status NEW Posted 21 Jan 2018 10:01 PM My Price 8.00

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