Trident ACC501 Module 3 CASE Latest 2019 JULY Question # 00603398 Course Code : ACC501 Subject: Business Due on: 07/31/2019 Posted On: 07/31/2019 12:21 PM Tutorials: 1 Rating: 4.9/5

ACC501 Accounting Fundamentals

Module 3 CASE

Coffee Maker’s
Incorporated (CMI)

Three divisions of a CMI are involved in a
dispute. Division A purchases Part 101 and Division B purchases Part 201 from a
third division, C. Both divisions need the parts for products that they
assemble. The intercompany transactions have remained constant for several
years.

Recently, outside suppliers have lowered their
prices, but Division C refuses to do so. In addition, all division managers are
feeling the pressure to increase profit. Managers of divisions A and B would
like the flexibility to purchase the parts they need from external parties at a
lower cost and increase profitability.

The current pattern is that

• Division A purchases 2,700 units of product part 101 from
  Division C (the supplying division) and another 1,300 units from an
  external supplier.
• Division B purchases 1,100 units of Part 201 from Division C
  and another 700 units from an external supplier.
• Note that both divisions A and B purchase the needed supplies
  from both the internal source and an external source at the same time.

The managers for divisions A and B are preparing
a new proposal for consideration.

• Division C will continue to produce Parts 101 and 201. All of
  its production will be sold to Divisions A and B. No other customers are
  likely to be found for these products in the short term, given that supply
  is greater than demand in the market.
• Division A will buy 2,000 units of Part 101 from Division C
  at the existing transfer price; and
• 2,000 units from an external supplier at the market price of
  $900 per unit.
• Division B will buy 900 units of Part 201 from Division C at
  the existing transfer price; and
• 900 units from an external supplier at $1,800 per unit.

Division C Data Based on the Current Agreement

Part	101	201
Annual volume (units)	2,700	1,100
Transfer price/unit	$1,000	$2,000
Variable expenses/unit	$700	$1,200

The fixed overhead for Division C is
$1,200,000.

Case Assignment

Required:

Computations (use Excel)

• Set up a table similar the one below to compute the
  difference between the current situation and the proposal for Divisions A
  and B.

Division A
	Current Situation	Proposal
	No. of Units	Purchase Price	Total Purchases	No. of Units	Purchase Price	Total Purchases
Internal purchases	2,700		$	2,000		$
External purchases	1,300			2,000
Total cost for Part 101			$			$
Savings to Div. A						$

• Compute the operating income for Division C under the current
  agreement and the proposed agreement.
• Is the revised agreement a good idea? Support your answer
  with computations.

Memo (use Word)

Write a 4- or 5-paragraph memo to the division
manager explaining the analysis performed. Start with an introduction and end
with a recommendation. Each of the four or five paragraphs should have a
heading.

Short Essay (use Word)

Start with an introduction and end with a
summary or conclusion. Use headings.

Evaluate and discuss the implications of the
following transfer pricing policies:

• Transfer price = cost plus a mark-up for the selling division
• Transfer price = fair market value
• Transfer price = price negotiated by the managers

Why is transfer pricing such a significant
issue both from a financial and managerial perspective?

Assignment Expectations

Each submission should include two files: (1)
An Excel file and (2) a Word document. The Word document shows the memo first
and short essay last. Assume a knowledgeable business audience and use required
format and length. Individuals in business are busy and want information
presented in an organized and concise manner.