Management Accounting
Imperial College Business School, London
18th December 2014
Group Assignment
Management Accounting
Submitted to:
Professor Jeremy Fernando
Submitted by:
Group E, Stream 2
Alaine Sung | Hadrien Jacomino | Mokhtar Ibrahim |
Nikhil Gangwani | Ronami Ogulu | Yana Kim
Q1 What, if anything, should John Powell do about Frank Duffy’s reluctance to use KEA-priced linerboard manufactured by a Del Norte Paper Company mill in the United States?
Answer 1:
Transfer pricing: is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise. Hence, the major role of the management accounting system is to assign a dollar figure to transactions between different responsibility centers.
Purposes: The main purpose is to induce optimal decision-making in a decentralized organization (i.e., to maximize the profit of the entire organization). However, there are other reasons such as;
Creating independent profit figures for each division and thus assessing the performance of each division distinctly.
Assist with the synchronization of production, sales and pricing decisions of the various divisions (through the use of suitable transfer prices). Further, these prices alert the managers to the value that goods and services have for other segments of the firm.
Not only will the transfer price have a significant effect on the reported profit of each profit center, additionally, it will influence the allocation of an organizations resources.
Mechanics:
Unnecessary of physical money to be exchanged between the two divisions. This price is solely for in-house records.
The results of the formula (Transfer Price × quantity of goods exchanged), acts as an expense for the purchasing division center and a revenue for the selling division.
Del Norte Paper Company is a fully integrated paper manufacturer. This case primarily involves transfer pricing amongst:
DNP Paper Mill
International
18th December 2014
Group Assignment
Management Accounting
Submitted to:
Professor Jeremy Fernando
Submitted by:
Group E, Stream 2
Alaine Sung | Hadrien Jacomino | Mokhtar Ibrahim |
Nikhil Gangwani | Ronami Ogulu | Yana Kim
Q1 What, if anything, should John Powell do about Frank Duffy’s reluctance to use KEA-priced linerboard manufactured by a Del Norte Paper Company mill in the United States?
Answer 1:
Transfer pricing: is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise. Hence, the major role of the management accounting system is to assign a dollar figure to transactions between different responsibility centers.
Purposes: The main purpose is to induce optimal decision-making in a decentralized organization (i.e., to maximize the profit of the entire organization). However, there are other reasons such as;
Creating independent profit figures for each division and thus assessing the performance of each division distinctly.
Assist with the synchronization of production, sales and pricing decisions of the various divisions (through the use of suitable transfer prices). Further, these prices alert the managers to the value that goods and services have for other segments of the firm.
Not only will the transfer price have a significant effect on the reported profit of each profit center, additionally, it will influence the allocation of an organizations resources.
Mechanics:
Unnecessary of physical money to be exchanged between the two divisions. This price is solely for in-house records.
The results of the formula (Transfer Price × quantity of goods exchanged), acts as an expense for the purchasing division center and a revenue for the selling division.
Del Norte Paper Company is a fully integrated paper manufacturer. This case primarily involves transfer pricing amongst:
DNP Paper Mill
International