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    Group 2 - Acc118 - 3bsma-C1-1

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    Ricky Ignacio
    1. The document discusses transfer pricing and approaches to setting transfer prices between divisions of a company, including minimum transfer price, negotiated transfer price, market-based transfer price, and cost-based transfer prices. 2. It provides an illustration involving Ecological Products Corporation, which has an Electrical Division that needs ball bearings from the company's Bearing Division. 3. The minimum price the Bearing Division would consider to produce the needed bearings is $60, which is the variable cost of producing them. 4. Other factors besides price that the Electrical Division would consider in deciding where to purchase the bearings include quality, ability to meet deadlines, reputation, and future price changes or improvements.

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    Group 2 - Acc118 - 3bsma-C1-1

    Uploaded by

    Ricky Ignacio
    477 views3 pages
    1. The document discusses transfer pricing and approaches to setting transfer prices between divisions of a company, including minimum transfer price, negotiated transfer price, market-based transfer price, and cost-based transfer prices. 2. It provides an illustration involving Ecological Products Corporation, which has an Electrical Division that needs ball bearings from the company's Bearing Division. 3. The minimum price the Bearing Division would consider to produce the needed bearings is $60, which is the variable cost of producing them. 4. Other factors besides price that the Electrical Division would consider in deciding where to purchase the bearings include quality, ability to meet deadlines, reputation, and future price changes or improvements.

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    GROUP 2 - ACC118- 3BSMA-C1-1

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    1. The document discusses transfer pricing and approaches to setting transfer prices between divisions of a company, including minimum transfer price, negotiated transfer price, market-based transfer price, and cost-based transfer prices. 2. It provides an illustration involving Ecological Products Corporation, which has an Electrical Division that needs ball bearings from the company's Bearing Division. 3. The minimum price the Bearing Division would consider to produce the needed bearings is $60, which is the variable cost of producing them. 4. Other factors besides price that the Electrical Division would consider in deciding where to purchase the bearings include quality, ability to meet deadlines, reputation, and future price changes or improvements.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    477 views3 pages

    Group 2 - Acc118 - 3bsma-C1-1

    Uploaded by

    Ricky Ignacio
    1. The document discusses transfer pricing and approaches to setting transfer prices between divisions of a company, including minimum transfer price, negotiated transfer price, market-based transfer price, and cost-based transfer prices. 2. It provides an illustration involving Ecological Products Corporation, which has an Electrical Division that needs ball bearings from the company's Bearing Division. 3. The minimum price the Bearing Division would consider to produce the needed bearings is $60, which is the variable cost of producing them. 4. Other factors besides price that the Electrical Division would consider in deciding where to purchase the bearings include quality, ability to meet deadlines, reputation, and future price changes or improvements.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    ACC 118: Strategic Business Analysis

    3BSMA-C1-1
    SAS DAY#14
    Illustration 1: No. 3&4
    Group 2
    Members:
    Cas, Jonabeth May B.
    Cervantes, Anna Mariel A.
    Cuevas, May Anne C.
    Dela Paz,Ricky Mae I.
    Francisco, Shaznay S.

    Transfer pricing - The price charged for goods or services moved from one unit of a company to its
    other units. Typically, transfer pricing analyses begin with a collection of restrictive assumptions
    about the organizational circumstances under which they will be performed.

    If the decisions that maximize divisional benefit also maximize community profit – known as
    goal congruence

    General approaches in setting transfer price


    1. Minimum Transfer Price - The minimum permissible transfer price may be expressed as the
    variable costs plus a calculated opportunity cost, or as the variable costs plus the calculated
    opportunity cost, the formula is
    Transfer Price= Differential Costs + Lost contribution margin per unit
    2. Negotiated Transfer Price – it is the amount set between the supplying and receiving divisions
    of an organization. Also allows managers of decentralized units to agree among them.
    3. Market-based Transfer Price - occur when a perfectly competitive market for intermediate
    goods exists, making setting transfer rates at market prices ideal for both decision making and
    performance assessment.
    4. Cost-based Transfer Price – Main factors must be considered is whether to use actual or
    standard, When products are sold to divisions within the same business, is a method of setting
    prices
    a) Alternative cost measures
    b) Variable Cost Transfer Price - When the sale division is under capacity, this pricing
    scheme is useful because only variable production costs are transferred.
    c) Full cost Transfer Price – also known as absorption cost, this is the sum of variable
    and fixed unit costs. They can even apply a markup to ensure that the sale division
    makes a profit.

    Illustration 1:
    Ecological Products Corporation
    The Electrical Division of Ecological Products Co. has developed a wind generator that requires a
    special “S” ball bearing. The Bearing Division of Ecological Products Co. has the capability to
    produce such a ball bearing.
    Unfortunately, the Ball Bearing Division is operating at capacity and will need to reduce production
    of another existing product, the “T” bearing, by 1,000 units per month to provide the 600 “S’’
    bearing needed each month by the Electric Division. The ‘’T’’ bearing currently sells for $50 per
    unit. Variable costs incurred to produce the ‘’T’’ bearing are $30 per unit; variable costs to produce
    the new ‘’S’’ bearing would be $60 per unit.

    The Electric Division has found an external supplier that would furnish the needed ‘’S’’ bearing at
    $100 per unit. Assume that both the Electric Divisoin and Ball Bearing Division are independent,
    autonomous investment centers.

    3. Refer to Ecological Products Co. What is the minimum price that Ball Bearing Division
    would consider to produce the ‘’S’’ bearing if the Ball Bearing Division did not need to forfeit
    any of existing sales to produce the ‘’S’’ bearing?
    ANSWER-The minimum price would be $60, the incremental costs to produce the ‘’S’’
    bearing

    DELA PAZ
    -The question is asking the minimum price and the new ‘’S’’ bearing would only cost them
    $60 per unit compare to the external supplier that cost them $100 per unit. They considering
    the price per unit.
    -The general approach is the minimum transfer price
    CUEVAS
    -The variable cost of $60 to produce the new ‘’S’’ bearing will be the minimum price at exact
    amount
    FRANCISCO
    -It would be the same price $60 to produce the ‘’S’’ bearing asa the variable cost
    CAS
    -The $60 variable cost would be the minimum price to produce the ‘’S’’ bearing
    CERVANTES
    -The minimum price would be $60 because variable cost to produce the ‘’S’’ bearing which
    is the Only product they need

    4.Refer to Ecological Products Co. What is the factors beside price would Electric Division
    want to consider in deciding where it will purchase the bearing?
    ANSWER-In particular, Electric Division would want to consider the quality of both
    suppliers. The factors to be considered would include: ability to meet delivery deadlines,
    quality of the product produced, ability to change as environmental conditions change,
    willingness to work on future cost reductions/quality improvements, business reputation,
    stability of the labor force, and possibility of future price increases.
    DELA PAZ
    -Since the topic is transfer price there a lot of possible of changes might happen and they are
    considering not only the price but if they going to meet the what Electric Division
    expectation before deciding
    -The general approach is market-based transfer price
    CUEVAS
    -Generally speaking, the following factors should be considereding the following order,the
    restriction, precision requirements, bearing load, operating speeds, durability and
    maintenance issues. Also the installation space, running accuracy.
    FRANCISCO
    -The factors they would consider aside from the price is the quality of it. If it would be
    beneficial and effective.
    CAS
    -The factors that Electric Division also consider in deciding where to purchase the bearing is
    the quality and consistency of the services that the supplier can give.There must be a
    satisfaction to
    CERVANTES
    -Electric Division also wants to consider the effectivity and efficieny of both products and
    supplier. They may check if the quality is the same or even exceed the quality of other
    supplier,
    the materials used in the product if they have quality or substandard, the time of delivery if
    there are delays,as well as the review of other customers to help Electric Division to decide
    whether they will buy to such supplier or not.

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