Exercise 15-29 (Algo) Transfer Pricing Policies: Ethical Issues (LO 15-4) Best Practices, Inc., is a management consulting firm. Its Corporate Division advises private firms on the adoption and use of cc management systems. Government Division consults with state and local governments. Government Division has a client that is interested in implementing an activity-based costing system in its public works department. The division's head approached the of Corporate Division about using one of its associates. Corporate Division charges clients $695 per hour for associate services same rate other consulting companies charge. The Government Division head complained that it could hire its own associate an estimated variable cost of $295 per hour, which is what Corporate pays its associates. Suppose that Government Division will charge the client interested in implementing an activity-based costing system by the hou based on cost plus a fixed fee, where the cost is primarily the consultant's hourly pay. Assume also that Government Division ca hire additional consultants. That is, if it is to do this job, it will need to use a consultant from Corporate Division. Required: a-1. What is the minimum transfer price that Corporate Division should obtain for its services, assuming that it is operating at cap a-2. Would this be an ethical price to charge the Government client? b-1. What is the transfer price you would recommend if Corporate Division was not operating at capacity? b-2. Would this be an ethical price to charge the Government client?
Exercise 15-29 (Algo) Transfer Pricing Policies: Ethical Issues (LO 15-4) Best Practices, Inc., is a management consulting firm. Its Corporate Division advises private firms on the adoption and use of cc management systems. Government Division consults with state and local governments. Government Division has a client that is interested in implementing an activity-based costing system in its public works department. The division's head approached the of Corporate Division about using one of its associates. Corporate Division charges clients $695 per hour for associate services same rate other consulting companies charge. The Government Division head complained that it could hire its own associate an estimated variable cost of $295 per hour, which is what Corporate pays its associates. Suppose that Government Division will charge the client interested in implementing an activity-based costing system by the hou based on cost plus a fixed fee, where the cost is primarily the consultant's hourly pay. Assume also that Government Division ca hire additional consultants. That is, if it is to do this job, it will need to use a consultant from Corporate Division. Required: a-1. What is the minimum transfer price that Corporate Division should obtain for its services, assuming that it is operating at cap a-2. Would this be an ethical price to charge the Government client? b-1. What is the transfer price you would recommend if Corporate Division was not operating at capacity? b-2. Would this be an ethical price to charge the Government client?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Exercise 15-29 (Algo) Transfer Pricing Policies: Ethical Issues (LO 15-4)
Best Practices, Inc., is a management consulting firm. Its Corporate Division advises private firms on the adoption and use of cost
management systems. Government Division consults with state and local governments. Government Division has a client that is
Interested in Implementing an activity-based costing system in its public works department. The division's head approached the head
of Corporate Division about using one of its associates. Corporate Division charges clients $695 per hour for associate services, the
same rate other consulting companies charge. The Government Division head complained that it could hire its own associate at an
estimated variable cost of $295 per hour, which is what Corporate pays its associates.
Suppose that Government Division will charge the client interested in implementing an activity-based costing system by the hour
based on cost plus a fixed fee, where the cost is primarily the consultant's hourly pay. Assume also that Government Division cannot
hire additional consultants, That is, if it is to do this job, it will need to use a consultant from Corporate Division.
Required:
a-1. What is the minimum transfer price that Corporate Division should obtain for its services, assuming that it is operating at capacity?
a-2. Would this be an ethical price to charge the Government client?
b-1. What is the transfer price you would recommend if Corporate Division was not operating at capacity?
b-2. Would this be an ethical price to charge the Government client?
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