Divisional Autonomy – NBC Institute

SCS – May 2021 – L3 – Q8 – Capital structure

Explain the objectives of transfer pricing in SBL and the potential conflict between entity goal congruence and divisional autonomy.

Question

Divisional managers are concerned about SBL’s objective of transfer pricing. As a Business Advisor, explain to the divisional managers the transfer pricing objective of SBL, as it is often in conflict with “entity goal congruence” and “division autonomy.” (10 marks)

Answer

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Tags: Divisional Autonomy, Goal Congruence, Performance Management, Transfer Pricing
Level: Level 3

Series: MAY 2021

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

Question

Lamiokor and Zenator are two divisions of Tsorkor group. Lamiokor division manufactures an intermediate product known as component A which has no external market. Zenator division incorporates this intermediate product, component A, into a final product that it sells to external customers. One unit of component A is used in the production of one unit of the final product. Lamiokor has quoted a transfer price of GH¢45 for each unit of component A.

The details of monthly production costs for each division are as follows:

Lamiokor Division:

Variable cost: GH¢15 per Component A
Product Specific Fixed Cost: GH¢50,000 (Incurred only by Lamiokor division and specifically for the production of Component A)

Zenator Division:

Variable cost: GH¢9 per unit
Product Specific Fixed Cost: GH¢75,000 (Cost incurred only by Zenator when converting component A to the final product)

The relationship between monthly external customer demand and selling price of the final product is as follows:

Month	Demand (Units)	Selling price per Unit (GH¢)
1	1,000	120
2	3,000	100
3	4,000	90
4	5,000	80
5	6,000	67

Required:
a) Explain FOUR (4) objectives of transfer pricing.

(4 marks)

b) Based on a transfer price of GH¢45 per component A, prepare the monthly profit statement for:
i) Lamiokor Division (6 marks)
ii) Zenator Division (6 marks)
iii) Tsorkor Group (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Divisional Autonomy, Divisional Performance, Goal Congruence, Profit statements, Transfer Pricing
Level: Level 2

Topic: Transfer Pricing
Series: NOV 2021

SCS – May 2021 – L3 – Q8 – Capital structure

Explain the objectives of transfer pricing in SBL and the potential conflict between entity goal congruence and divisional autonomy.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Divisional Autonomy, Goal Congruence, Performance Management, Transfer Pricing
Level: Level 3

Series: MAY 2021

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

Question

The details of monthly production costs for each division are as follows:

Lamiokor Division:

Variable cost: GH¢15 per Component A
Product Specific Fixed Cost: GH¢50,000 (Incurred only by Lamiokor division and specifically for the production of Component A)

Zenator Division:

Variable cost: GH¢9 per unit
Product Specific Fixed Cost: GH¢75,000 (Cost incurred only by Zenator when converting component A to the final product)

The relationship between monthly external customer demand and selling price of the final product is as follows:

Month	Demand (Units)	Selling price per Unit (GH¢)
1	1,000	120
2	3,000	100
3	4,000	90
4	5,000	80
5	6,000	67

Required:
a) Explain FOUR (4) objectives of transfer pricing.

(4 marks)

b) Based on a transfer price of GH¢45 per component A, prepare the monthly profit statement for:
i) Lamiokor Division (6 marks)
ii) Zenator Division (6 marks)
iii) Tsorkor Group (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Divisional Autonomy, Divisional Performance, Goal Congruence, Profit statements, Transfer Pricing
Level: Level 2

Topic: Transfer Pricing
Series: NOV 2021

Question Tag: Divisional Autonomy

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SCS – May 2021 – L3 – Q8 – Capital structure

Explain the objectives of transfer pricing in SBL and the potential conflict between entity goal congruence and divisional autonomy.

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

SCS – May 2021 – L3 – Q8 – Capital structure

Explain the objectives of transfer pricing in SBL and the potential conflict between entity goal congruence and divisional autonomy.

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

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SCS – May 2021 – L3 – Q8 – Capital structure

Explain the objectives of transfer pricing in SBL and the potential conflict between entity goal congruence and divisional autonomy.

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MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

You're reporting an error for "MA – Nov 2021 – L2 – Q1 – Transfer Pricing"

SCS – May 2021 – L3 – Q8 – Capital structure

Explain the objectives of transfer pricing in SBL and the potential conflict between entity goal congruence and divisional autonomy.

You're reporting an error for "SCS – May 2021 – L3 – Q8 – Capital structure"

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

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