Nama : Meriska Suwatri

NIM : 2020522041

Tugas Group 7
DECENTRALIZATION: RESPONSIBILITY ACCOUNTING, PERFORMANCE EVALUATION,
AND TRANSFER PRICING
Chapin, Inc., owns a number of food service companies. Two divisions are the Coffee
Division and the Donut Shop Division. The Coffee Division purchases and roasts coffee
beans for sale to supermarkets and specialty shops. The Donut Shop Division operates a
chain of donut shops where the donuts are made on the premises. Coffee is an important
item for sale along with the donuts and, to date, has been purchased from the Coffee
Division. Company policy permits each manager the freedom to decide whether or not to
buy or sell internally. Each divisional manager is evaluated on the basis of return on
investment and residual income. Recently, an outside supplier has offered to sell coffee
beans, roasted and ground, to the Donut Shop Division for $4.00 per pound. Since the
current price paid to the Coffee was interested in the offer. However, before making the
decision to switch to the outside supplier, she decided to approach Raymond Jasson,
manager of the Coffee Division, to see if he wanted to offer an even better price. If not, then
Brandi would buy from the outside supplier. Upon receiving the information from Brandi
about the outside offer, Raymond gathered the following information about the coffee:
Direct materials $0.90
Direct labor 0.40
Variable overhead 0.70
Fixed overhead* 1.50
Total unit cost $3.50
*Fixed overhead is based on $1,500,000/1,000,000 pounds.
Selling price per pound $4.50
Production capacity 1,000,000 pounds
Internal sales 100,000 pounds
Required:
1. Suppose that the Coffee Division is producing at capacity and can sell all that it produces
to outside customers. How should Raymond respond to Brandi’s request for a lower
transfer price? What will be the effect on firmwide profits? Compute the effect of this
response on each division’s profits.
Jawaban :
Raymond seharusnya tidak menurunkan harga yang dibebankan kepada Brandi jika dia
bisa menjual semua yang dia hasilkan dengan harga $ 4,50 per pon. Brandi harus
membeli secara eksternal, menghemat perusahaan $ 50.000 (100.000 × $ 0,50).
Tabungan $ 50.000 milik Divisi Toko Donat. Tidak akan ada efek pada Divisi Kopi.

2. Now, assume that the Coffee Division is currently selling 950,000 pounds. If no units are
sold internally, total coffee sales will drop to 850,000 pounds. Suppose that Raymond
refuses to lower the transfer price from $4.50. Compute the effect on firm wide profits
and on each division’s profits.
Jawaban :
Coffee Division Gross profit if Donut Division buys from Coffee:
Sales (950,000 x $4.50) $ 4,275,000
Less: Variable cost of goods sold (950,000 x $2) $ 1,900,000
Less Fixed Overhead (1,000,000 × $1.50 $ 1,500,000
Gross profit if Donut Division buys from Coffee: $ 875,000

Gross profit if Donut Division buys outside:

Sales (850,000 x $4.50) $ 3,825,000
Less: Variable cost of goods sold (850,000 x $2) $ 1,700,000
Less Fixed Overhead (1,000,000 × $1.50) $ 1,500,000
Gross profit if Donut Division buys outside: $ 625,000

Decrease in profit for Coffee Division = $625,000 - $875,000 $ (250,000)

Increase in profit for Donut Division = ($4.50 – $4.00) × 100,000 $ 50,000
Overall firm impact = $(250,000) + $50,000 = $ (200,000)
3. Refer to Requirement 2. What are the minimum and maximum transfer prices? Suppose
that the transfer price is the maximum price less $1. Compute the effect on the firm’s
profits and on each division’s profits. Who has benefited from the outside bid?
Jawaban :
Minimum transfer price $3.50 Transfer price $3.00/unit

Maximum transfer price $4.00

Total effect on Coffee Division contribution margin $150,000 (decrease)

Total effect on Donut Division contribution margin $100,000 (increase)

Total effect on Chapin Company contribution margin $50,000 (decrease)

4. Refer to Requirement 2. Suppose that the Coffee Division has operating assets of
$2,000,000. What is divisional ROI based on the current situation? Now, refer to
Requirement 3. What will divisional ROI be if the transfer price of the maximum price
less $1 is implemented? How will the change in ROI affect Raymond? What information
has he gained as a result of the transfer pricing negotiations?
Jawaban :
Original Income New Income
Sales:
External $3,825,000 $3,825,000
Internal 450,000 $4,275,000 300,000 $4,125,000
Variable cost 1,900,000 1,900,000
Contribution margin $2,375,000 $2,225,000
Fixed cost 1,500,000 1,500,000
Net income $ 875,000 $ 725,000

Penurunan NI atau ROI akan mempengaruhi evaluasi Raymond sebagai manajer dan
peluangnya untuk mendapatkan bonus dan promosi. Meski begitu, negosiasi transfer
pricing telah memberinya informasi berharga. Dia sekarang sadar bahwa ada perusahaan
luar yang meremehkannya untuk kopi dengan kualitas yang sama; dia perlu menentukan
mengapa (misalnya, struktur biaya yang lebih efisien) dan apakah ini juga akan
mempengaruhi penjualan luarnya sendiri.