Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed



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solutions-manual-to-bhimani-et-al-management-and-cost-accounting-pearson-2012-1

Method Ab b(Internal transfers
at market prices)
Method B
(Internal transfers at
110%
of full costs)
Mining Division manager’s bonus
(1%
× €12,000,000; 1% × €2,400,000)
€120,000
€24,000 Metals Division manager’s bonus
(1%
× €3,600,000; 1% × €13,200,000)
36,000 132,000


Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012 The Mining Division manager will prefer Method A (transfer at market prices) because this method gives €120,000 of bonus rather than €24,000 under Method B transfers at 110% of full costs. The Metals Division manager will prefer Method B because this method gives €132,000 of bonus rather than €36,000 under Method Ab

Arturo Tuzón, the manager of the Mining Division will appeal to the existence of a competitive market to price transfers at market prices. Using market prices for transfers in these conditions leads to goal congruence. Division managers acting in their own best interests make decisions that are also in the best interests of the company as a whole.
Tuzón will further argue that setting transfer prices based on cost will cause him to pay no attention to controlling costs since all costs incurred will be recovered from the Metals Division at 110% of full costs.

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