Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Accounting Basics Expert

Transfer pricing, goal congruence, ethics. Jeremiah Industries manufactures high-grade aluminum luggage made from recycled metal. The company operates two divisions: metal recycling and luggage fabrication. Each division operates as a decentralized entity. The metal recycling division is free to sell sheet aluminum to outside buyers, and the luggage fabrication division is free to purchase recycled sheet aluminum from other sources. Currently, however, the recycling division sells all of its output to the fabrication division, and the fabrication division does not purchase materials from any outside suppliers. Aluminum is transferred from the recycling division to the fabrication division at 110% of full cost. The recycling division purchases recyclable aluminum for $0.50 per pound. The division's other variable costs equal $2.80 per pound, and fixed costs at a monthly production level of 50,000 pounds are $1.50 per pound. During the most recent month, 50,000 pounds of aluminum were transferred between the two divisions. The recycling division's capacity is 70,000 pounds. Due to increased demand, the fabrication division expects to use 60,000 pounds of aluminum next month. Metalife Corporation has offered to sell 10,000 pounds of recycled aluminum next month to the fabrication division for $5.00 per pound.
Required
1. find out the transfer price per pound of recycled aluminum. Assuming that each division is considered a profit center, would the fabrication manager choose to purchase 10,000 pounds next month from Metalife?
2. Is the purchase in the best interest of Jeremiah Industries? Show your calculations. What is the cause of this goal incongruence?
3. The fabrication division manager suggests that $5.00 is now the market price for recycled sheet aluminum, and that this should be the new transfer price. Jeremiah's corporate management tends to agree. The metal recycling manager is suspicious. Metalife's prices have always been considerably higher than $5.00 per pound. Why the sudden price cut? After further investigation by the recycling division manager, it is revealed that the $5.00 per pound price was a one-time-only offer made to the fabrication division due to excess inventory at Metalife. Future orders would be priced at $5.50 per pound. Comment on the validity of the $5.00 per pound market price and the ethics of the fabrication manager. Would changing the transfer price to $5.00 matter to Jeremiah Industries?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M946309

Have any Question? 


Related Questions in Accounting Basics

Problem 1panda incs 10-k report contains the following

Problem 1 Panda Inc.'s 10-K report contains the following footnote relating to its leasing activities: At December 31, 2013, the company was committed to non-cancellable leases with remaining terms of one to 15 years. A ...

Exercise recording receivables and identifying their effect

Exercise: Recording receivables and identifying their effect on financial statements Davos Company performed services on account for $160,000 in 2016. Davos collected $120,000 cash from accounts receivable during 2016, a ...

1 the manufacture of herbal health tonic is a competitive

1. The manufacture of herbal health tonic is a competitive industry. The manufacturing facilities have an annual output of 100,000 gallons. Operating costs are $2 per gallon. A 100,000 gallon capacity plant costs $500,00 ...

Accountingcase to assess assurance of learning goal ethical

Accounting Case to assess Assurance of Learning Goal (Ethical Perspectives) Michael Greer is the Marketing Vice President for Atlantic Lubricants headquartered in Boston with extensive operations in New York City that se ...

Comprehensive problem 1morgan companys balance sheet at

Comprehensive Problem 1 Morgan Company's balance sheet at December 31, 2016, is presented below. Morgan Company Balance Sheet December 31, 2016 Cash $30,000 Accounts Payable $12,250 Inventory 3050 Interest Payable 300 Pr ...

1 if a bartender can somehow accumulate extra liquor and

1. If a bartender can somehow accumulate extra liquor, and does not register the extra drinks, which of these activities could be spotted by the analytical methods we studied? A. The bartender steals the extra liquor B. ...

Problem 1bart exchanges some real estate basis of 80000 and

Problem 1 Bart exchanges some real estate (basis of $800,00 and fair market value of $1 million) for other real estate owned by Roland (basis of $1.2 million and fair market value of $900,00) and $100,000 in cash. The re ...

This assignment will assess the following learning

This assignment will assess the following learning outcomes: - Demonstrate the impact on the financial statements and the implication for different users of accounts of alternative ways of treating controversial accounti ...

1 identify which of the following statements is truea a

1. Identify which of the following statements is true. A. A partnership exists as long as there are at least two individuals or entities engaged in the active conduct of a trade or business or a financial operation, and ...

Assignment expected value and consumer choicesexpected

Assignment: Expected Value and Consumer Choices Expected Value and Consumer Choices Consumers' choices are prey to subtle discrepancies that arise in cognitive accounting. Learning how and when you are prey to these disc ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro