Caribbean Brewers Study
Caribbean Brewers: Transfer Pricing, Ethics and Governance
Case Summary Gera International is a well established international brand of beer that is ranked amongst the top three brands of beer in the world. With transportation prices rising, Gera International decided to purchase a plant in Antigua in 2005 and they renamed the subsidiary, Caribbean Brewers, Inc. (CBI). In 2008, the production facilities of CBI were expanded and their productive capacity doubled. Furthermore, we are then introduced to Jason Joseph a production manager who is unhappy and distressed because along with the production doubling, he lost ownership in the company, bonuses, and annual dividends. JJ comes to us (the financial advisor to the CFO) and informs us that although the process of brewing their beer has not changed, the costs measurement system that is in place is unfair to him and causing him to want to quit. It is unfair to JJ because CBI uses a percentage of sale system, and this takes away from the control of the production employee because he has no control over sales. Nevertheless, JJ explains how the quality of the beer is causing him to lose profit on shipping fees. Gera has complained about the quality of beer exported to other Caribbean countries and they refuse to pay the shipping terms. JJ is positive that the consistency of the beer he exports is accurate and that the quality excuse is just a reason for Gera to get away with not paying the fee. We have also been provided with a letter from the Inland Revenue Department stating that we will have our tax filings reviewed for the years ending – December 31, 2008, 2009, and 2010. In the following report we will address the rising production costs, the performance measurement system, and report on any vulnerability and risks associated with our upcoming tax audit.
Rising Costs of Production
JJ focused on production cost per case prior to the expansion. Now, Gera International holds employees accountable for production
Case Summary Gera International is a well established international brand of beer that is ranked amongst the top three brands of beer in the world. With transportation prices rising, Gera International decided to purchase a plant in Antigua in 2005 and they renamed the subsidiary, Caribbean Brewers, Inc. (CBI). In 2008, the production facilities of CBI were expanded and their productive capacity doubled. Furthermore, we are then introduced to Jason Joseph a production manager who is unhappy and distressed because along with the production doubling, he lost ownership in the company, bonuses, and annual dividends. JJ comes to us (the financial advisor to the CFO) and informs us that although the process of brewing their beer has not changed, the costs measurement system that is in place is unfair to him and causing him to want to quit. It is unfair to JJ because CBI uses a percentage of sale system, and this takes away from the control of the production employee because he has no control over sales. Nevertheless, JJ explains how the quality of the beer is causing him to lose profit on shipping fees. Gera has complained about the quality of beer exported to other Caribbean countries and they refuse to pay the shipping terms. JJ is positive that the consistency of the beer he exports is accurate and that the quality excuse is just a reason for Gera to get away with not paying the fee. We have also been provided with a letter from the Inland Revenue Department stating that we will have our tax filings reviewed for the years ending – December 31, 2008, 2009, and 2010. In the following report we will address the rising production costs, the performance measurement system, and report on any vulnerability and risks associated with our upcoming tax audit.
Rising Costs of Production
JJ focused on production cost per case prior to the expansion. Now, Gera International holds employees accountable for production