Section-A

problem1)“Value Chain Analysis can provide valuable inputs for management control”.  Do you agree with this statement?  Why or why not?

problem2) describe briefly the following terms:

i) Elements of Control Process

ii) Cost-Based Transfer Prices    

iii) Functions of the Controller

problem3) What is ‘Transfer Price’ and what are the different methods of determining it?

problem4) What is ‘Goal Congruence’? Elaborate

Section-B

Case Study

Division P of Action Shoe company manufactures product “ α “, that is sold to Division Q as the component of product “β”. Product “β” is sold to Division R, that uses it as the component in product “γ” . Product “γ” is sold to customers outside the company. Intra company pricing rule is that products are transferred between divisions at standard cost plus a 10% return on inventories and fixed assets. From information given below, compute transfer price for product “α” and “β” and standard cost of product “γ”

    Standard cost per unit
                                                      Product  “α”    Product  “β”    Product  “γ”
Material purchased outside                  Rs. 2.00         Rs. 3.00        Rs.1.00
Direct labour                                            1.00               1.00             2.00
Variable overhead                                     1.00              1.00              2.00
Fixed overhead per unit                             3.00              4.00              1.00
Standard volume                                   10,000           10,000         10,000
Inventories (average)                         Rs. 70,000        Rs. 15,000     Rs. 30,000
Fixed assets (net)                                   30,000           45,000         16,000