Lecture Fundamentals of cost accounting (4th edition): Chapter 15 - Lanen, Anderson, Maher

Chia sẻ: 653543 653543 | Ngày: | Loại File: PPT | Số trang:30

Thêm vào BST

Báo xấu

93
lượt xem 4
download

Download Vui lòng tải xuống để xem tài liệu đầy đủ

(BQ) Chapter 15: Transfer pricing. A common example of decentralized decision making occurs when business units (divisions) within the organization buy goods and services from one another and when each is treated as a profit center (i.e., when each unit manager is evaluated on reported unit profit). When such an exchange occurs, the accounting systems in the two divisions record the transaction as if it were an ordinary sale (purchase) to (from) an external customer (supplier).

Chủ đề:

Bình luận(0) Đăng nhập để gửi bình luận!

Lưu

Nội dung Text: Lecture Fundamentals of cost accounting (4th edition): Chapter 15 - Lanen, Anderson, Maher

© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Transfer Pricing Chapter 15 PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA McGrawHill/Irwin Copyright © 2014 by The McGrawHill Companies, Inc. All rights reserved.
Learning Objectives LO 15-1 Explain the basic issues associated with transfer pricing. LO 15-2 Explain the general transfer pricing rules and understand the underlying basis for them. LO 15-3 Identify the behavioral issues and incentive effects of negotiated transfer prices, cost-based transfer prices, and market-based transfer. LO 15-4 Explain the economic consequences of multinational transfer prices. LO 15-5 Describe the role of transfer prices in segment reporting. 153
LO 15-1 Transfer Pricing LO 15-1 Explain the basic issues associated with transfer pricing. Transfer Transfer Price Price The The value value or or amount amount recorded recorded in in aa firm’s firm’s accounting accounting records records when when one one business business unit unit sells sells (transfers) (transfers) aa good good oror service service to to another another business business unit. unit. The The accounting accounting records records inin the the two two units units (responsibility (responsibility centers) centers) treat treat this this transaction transaction in in exactly exactly thethe same same way way asas aa sale sale to to an an outside outside customer. customer. Because Because thethe exchange exchange takes takes place place within within the the organization, organization, however, however, thethe firm firm has has considerable considerable discretion discretion inin setting settingthis this transfer transfer price. price. 154
LO 15-1 Transfer Pricing Because Because the the managers managers of of both both thethe selling selling division division and and the the buying buying division division are are evaluated evaluated on on division division profit, profit, not not company company profit, profit, they they consider consider the the effect effect ofof all all sales, sales, both both internal internal and and external, external, onon their their division, division, notnot company, company, profit. profit. The The optimal optimal transfer transfer price price isis the the price price that that leads leads both both division division managers, managers, each each acting acting in in his his oror her her ownown self- self- interest, interest, to to make make decisions decisions thatthat are are in in the the firm’s firm’s best best interest. interest. 155
LO 15-2 The Setting LO 15-2 Explain the general transfer pricing rules and understand the underlying basis for them. 156
LO 15-2 The Setting Padre Papers Cost and Production Data 157
LO 15-2 Determination of Optimal Transfer Price • Given the market prices and the costs in the firm, does firm profit increase? • Given the transfer price, the intermediate market prices, and the divisional costs, does the selling division profit increase? • Given the transfer price, the final market prices, and the divisional costs, does the buying division profit increase? 158
LO 15-2 Padre Papers Example Assume the following data for the wood division: Capacity Capacity inin units units 100,000 100,000 Selling Selling price price to to outside outside $$ 60 60 Variable Variable price price per per unit unit $$ 20 20 Fixed Fixed price price per per unit unit (based (based on on capacity) capacity) $$ 20 20 159
LO 15-2 Padre Papers Example The Paper Division isis currently purchasing 100,000 100,000 units from an outside supplier supplier for $50, but would like to purchase units from the Wood Division. The The optimal transfer price in this case is clear: clear: ItIt is the the only viable viable price, the intermediate market price. price. At any priceprice lower than than the intermediate intermediate market price, Wood Division will will supply no no output to Paper Division, and at any higher price, Paper will not not purchase purchase any wood from Wood. 1510
LO 15-2 Optimal Transfer Price Using Using the the intermediate intermediate market market price price as as the the transfer transfer price, price, the the transfer transfer price price is is set set atat $50. $50. At At these these market market prices, prices, does does Padre Padre Papers Papers (as (as aa firm) firm) want want to to sell sell paper? paper? The The company company receives receives $120 $120 for for every every unit unit sold. sold. The The total total variable variable cost cost is is $50 $50 (=(= $20 $20 Wood Wood cost cost ++ $30 $30 Paper Paper cost). cost). The The firm firm wants wants toto make make thethe sale. sale. Wood Wood Division Division is is indifferent indifferent between between selling selling wood wood internally internally oror on on the the intermediate intermediate market. market. Paper Paper Division Division isis indifferent indifferent between between buying buying wood wood from from Wood Wood Division Division or or the the intermediate intermediate market. market. Therefore, Therefore, thethe sale sale will will be be made made andand thethe source source of of wood wood to to Paper Paper Division Division does does notnot affect affect firm firm profits. profits. 1511
LO 15-2 Padre Papers Example Transfer Transfer Variable Variable Lost Lost contribution contribution == ++ price price cost cost (VC) (VC) margin margin (CM) (CM) IfIf the the Wood Wood Division Division Transfer Transfer == $20 $20 ++ $40 $40 isis working working at at capacity: capacity: price price IfIf the the Wood Wood Division Division Transfer Transfer == $20 $20 ++ $0 $0 has has idle idle capacity: capacity: price price 1512
LO 15-2 Optimal Transfer Price Transfer Transfer Outlay Outlay Opportunity Opportunity cost cost of of the the == ++ price price cost cost resource resource at at the the point point of of transfer transfer 1513
LO 15-2 Optimal Transfer Price To restate the goal of each manager: • Each division manager wants to maximize his contribution margin. • Each manager is indifferent about the transfer price if it has no impact on their contribution margin. 1514
LO 15-2 Optimal Transfer Price: No Intermediate Market Suppose Supposethat thatno nointermediate intermediatemarket marketfor forwood woodexists existsor orthat, that,for for whatever whateverreason, reason,the thecompany companyhas hasdecided decidedthat thatititwill willnot notallow allowthethe divisions divisionsto tobuy buyor orsell sellwood woodon onthe theoutside outsidemarket. market. •• In Inthis thiscase, case,the theonly onlyoutlet outletfor forthe theWood WoodDivision Division isisthe the Paper PaperDivision Divisionand andthe theonly onlysource sourceof ofsupply supplyfor forthe thePaper Paper Division Divisionisisthe theWood WoodDivision. Division. •• The Theoptimal optimaltransfer transferprice priceisisthe theoutlay outlaycost costfor forproducing producingthe the goods goods(generally (generallythe thevariable variablecosts). costs). 1515
LO 15-2 Perfect Intermediate MarkedQuality Differences Variable Variable manufacturing manufacturing costcost (Wood (Wood Division) Division) per per unit unit $$ 20 20 Variable Variable finishing finishing cost cost (Paper (Paper Division) Division) per per unit unit $$ 30 30 Other Other data: data: Final Final market market (paper) (paper) price price $120 $120 Intermediate Intermediate market market (grade (grade AA wood) wood) price price $$ 60 60 Intermediate Intermediate market market (grade (grade BB wood) wood) price price $$ 50 50 1516
LO 15-2 Quality Difference Example Grade B wood: $50 internal transfer price Wood Wood Paper Paper Sales: Sales: $$ 50 50××100,000 100,000(transfer) (transfer) $5,000,000 $5,000,000 $120 $120××100,000 100,000(transfer) (transfer) $12,000,000 $12,000,000 Variable Variablecosts: costs: $$ 20 20××100,000 100,000 $2,000,000 $2,000,000 $$ 50 50××100,000 100,000(transfer) (transfer) $$ 5,000,000 5,000,000 $$ 30 30××100,000 100,000(processing) (processing) 3,000,000 3,000,000 Fixed Fixedcosts costs $2,000,000 $2,000,000 4,000,000 4,000,000 Operating Operatingprofit profit $1,000,000 $1,000,000 $$ -0- -0- Total Totalcompany companyoperating operatingprofit profit $1,000,000 $1,000,000 1517
LO 15-2 Quality Difference Example Grade A wood: $60 internal transfer price Wood Wood Paper Paper Sales: Sales: $$ 60 60××100,000 100,000(transfer) (transfer) $6,000,000 $6,000,000 $120 $120××100,000 100,000(transfer) (transfer) $12,000,000 $12,000,000 Variable Variablecosts: costs: $$ 20 20××100,000 100,000 $2,000,000 $2,000,000 $$ 60 60××100,000 100,000(transfer) (transfer) $$ 6,000,000 6,000,000 $$ 30 30××100,000 100,000(processing) (processing) 3,000,000 3,000,000 Fixed Fixedcosts costs $2,000,000 $2,000,000 4,000,000 4,000,000 Operating Operatingprofit profit $2,000,000 $2,000,000 $$(1,000,000) (1,000,000) Total Totalcompany companyoperating operatingprofit profit $1,000,000 $1,000,000 1518
LO 15-3 Managers’ Goals versus Firms’ Goals LO 15-3 Identify the behavioral issues and incentive effects of negotiated transfer prices, costbased transfer prices, and marketbased transfer prices. • Transfer price higher than market: Buying division will not buy • Transfer price lower than market: Selling division will not sell 1519
LO 15-3 Centrally Established Transfer Price Policies Market Price-Based Sets the transfer price at the market price or at a small discount from the market price Cost-Based Outlay cost to selling division plus forgone contribution to company projects Negotiated Transfer Managers of the buying and selling divisions agree on a price 1520