pager communication devices. These devices are sold to other Worldwide divisions, as well as to other communication companies. CD wa recently approached by the manager of the Personal Communications Division regarding a request to make a special emergency- response pager designed to receive signals from anywhere in the world. The Personal Communications Division has requested that produce 12,000 units of this special pager. The following facts are available regarding the Comm Devices Division. Selling price of standard pager Variable cost of standard pager Additional variable cost of special pager $95 $50 $30 For each of the following independent situations, calculate the minimum transfer price, and determine whether the Personal Communications Division should accept or reject the offer.

Armoff Enterprises manufactures central processing units (CPU) for a line personal computers. The CPU's are manufactured in Seattle, Columbus, and New York and shipped to warehouses in Pittsburgh, Mobile, Denver, Los Angeles, and Washington D., for further distribution. The following table shows the number of CPU available at each plant, the number of CPU's required by each warehouse, and shipping cost in dollars (dollars per unit). Warehouse Plant Pittsburgh Mobile Denver Los Angeles Washington CPU's available Seattle 10 20 9 10 9000 Çolombus 10 8 30 6 4000 New York 1 20 7 10 4 8000 21000 CPU's required 3000 5000 4000 6000 3000 a. Develop a network representation of this problem. b. Determine the amount that should be shipped from each plant to each warehouse to minimize the total shipping cost. c. The Pittsburgh warehouse just increased its order by 1000 units, and Amoff authorized the Columbus plant to increase its production by 1000 units. Will this production increase lead to an…

ABC Enterprises is a multi-divisional firm that makes and sells personal protective equipment to health-care providers and other businesses. Division A manufactures large, state-of-the-art HEPA (high-efficiency particulate air) filters that trap harmful particles. Division A sells HEPA filters to external buyers at the price of $73 per unit. Division A also provides these HEPA filters to Division B; Division B installs these filters in medical-grade Air Purifier Units and sells these Air Purifier Units to external buyers at the price of $906 per unit. Divisions A and B use normal absorption costing, with overhead (all fixed) allocated to units using a sophisticated activity-based costing system. Inventoriable unit costs for the two divisions are: Division A’s HEPA Filters: absorption cost per unit for external sales of $44 (includes $7 fixed overhead allocation); absorption cost per unit for internal transfers of $33 (includes $7.80 fixed overhead allocation). Division B’s Air Purifier…

Paterson Company, a U.S.-based company, manufactures and sells electronic components worldwide. Virtually all its manufacturing takes place in the United States. The company has marketing divisions throughout Europe, including France. Debbie Kishimoto, manager of this division, was hired from a competitor 3 years ago. Debbie, recently informed of a price increase in one of the major product lines, requested a meeting with Jeff Phillips, marketing vice president. Their conversation follows. Debbie: Jeff, I simply dont understand why the price of our main product has increased from 5.00 to 5.50 per unit. We negotiated an agreement earlier in the year with our manufacturing division in Philadelphia for a price of 5.00 for the entire year. I called the manager of that division. He said that the original price was still acceptablethat the increase was a directive from headquarters. Thats why I wanted to meet with you. I need some explanations. When I was hired, I was told that pricing decisions were made by the divisions. This directive interferes with this decentralized philosophy and will lower my divisions profits. Given current market conditions, there is no way we can pass on the cost increase. Profits for my division will drop at least 600,000 if this price is maintained. I think a midyear increase of this magnitude is unfair to my division. Jeff: Under normal operating conditions, headquarters would not interfere with divisional decisions. But as a company, we are having some problems. What you just told me is exactly why the price of your product has been increased. We want the profits of all our European marketing divisions to drop. Debbie: What do you mean that you want the profits to drop? That doesnt make any sense. Arent we in business to make money? Jeff: Debbie, what you lack is corporate perspective. We are in business to make money, and thats why we want European profits to decrease. Our U.S. divisions are not doing well this year. Projections show significant losses. At the same time, projections for European operations show good profitability. By increasing the cost of key products transferred to Europeto your division, for examplewe increase revenues and profits in the United States. By decreasing your profits, we avoid paying taxes in France. With losses on other U.S. operations to offset the corresponding increase in domestic profits, we avoid paying taxes in the United States as well. The net effect is a much-needed increase in our cash flow. Besides, you know how hard it is in some of these European countries to transfer out capital. This is a clean way of doing it. Debbie: Im not so sure that its clean. I cant imagine the tax laws permitting this type of scheme. There is another problem, too. You know that the companys bonus plans are tied to a divisions profits. This plan could cost all of the European managers a lot of money. Jeff: Debbie, you have no reason to worry about the effect on your bonusor on our evaluation of your performance. Corporate management has already taken steps to ensure no loss of compensation. The plan is to compute what income would have been if the old price had prevailed and base bonuses on that figure. Ill meet with the other divisional managers and explain the situation to them as well. Debbie: The bonus adjustment seems fair, although I wonder if the reasons for the drop in profits will be remembered in a couple of years when Im being considered for promotion. Anyway, I still have some strong ethical concerns about this. How does this scheme relate to the tax laws? Jeff: We will be in technical compliance with the tax laws. In the United States, Section 482 of the Internal Revenue Code governs this type of transaction. The key to this law, as well as most European laws, is evidence of an arms-length price. Since youre a distributor, we can use the resale price method to determine such a price. Essentially, the arms-length price for the transferred good is backed into by starting with the price at which you sell the product and then adjusting that price for the markup and other legitimate differences, such as tariffs and transportation. Debbie: If I were a French tax auditor, I would wonder why the markup dropped from last year to this year. Are we being good citizens and meeting the fiscal responsibilities imposed on us by each country in which we operate? Jeff: Well, a French tax auditor might wonder about the drop in markup. But, the markup is still within reason, and we can make a good argument for increased costs. In fact, weve already instructed the managers of our manufacturing divisions to legitimately reassign as many costs as they can to the European product lines. So far, they have been very successful. I think our records will support the increase that you are receiving. You really do not need to be concerned with the tax authorities. Our tax department assures me that this has been carefully researchedits unlikely that a tax audit will create any difficulties. Itll all be legal and above board. Weve done this several times in the past with total success. Required: 1. Do you think that the tax-minimization scheme described to Debbie Kishimoto is in harmony with the ethical behavior that should be displayed by top corporate executives? Why or why not? What would you do if you were Debbie? 2. Apparently, the tax department of Paterson Company has been strongly involved in developing the tax-minimization scheme. Assume that the accountants responsible for the decision are CMAs and members of the IMA, subject to the IMA standards of ethical conduct. Review the IMA standards for ethical conduct in Chapter 1. Are any of these standards being violated by the accountants in Patersons tax department? If so, identify them. What should these tax accountants do if requested to develop a questionable taxminimization scheme?

Johnson and Gomez, Inc., is a small firm involved in the production and sale of electronic business products. The company is well known for its attention to quality and innovation. During the past 15 months, a new product has been under development that allows users improved access to e-mail and video images. Johnson and Gomez code named the product the Wireless Wizard and has been quietly designing two models: Basic and Enhanced. Development costs have amounted to $207,000 and $288,000, respectively. The total market demand for each model is expected to be 57,000 units, and management anticipates being able to obtain the following market shares: Basic, 25 percent; Enhanced, 20 percent. Forecasted data follow. Projected selling price Per-unit production costs: Direct material Direct labor Variable overhead Marketing and advertising (fixed but avoidable) Sales commissions* Problem 14-46 Part 3 Req 3A *Computed on the basis of sales dollars. Since the start of development work on the…

Johnson and Gomez, Inc., is a small firm involved in the production and sale of electronic business products. The company is well known for its attention to quality and innovation. During the past 15 months, a new product has been under development that allows users improved access to e- mail and video images. Johnson and Gomez code named the product the Wireless Wizard and has been quietly designing two models: Basic and Enhanced. Development costs have amounted to $204,000 and $285,000, respectively. The total market demand for each model is expected to be 55,000 units, and management anticipates being able to obtain the following market shares: Basic, 30 percent; Enhanced, 25 percent. Forecasted data follow. Projected selling price Per-unit production costs: Direct material Direct labor Variable overhead Projected selling price Per-unit production costs: Direct material Direct labor Variable overhead Marketing and advertising (fixed but avoidable) Sales commissions Basic $ 420.00…

Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models: Activity Cost Pool Supporting manufacturing Order processing Customer service Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months: Number of cases Number of orders Direct labour-hours per case Selling price per case Direct materials cost per case. Sales Costs: Activity Rates $2 per direct labour-hour $19 per order $60 per customer Direct materials Direct labour Supporting manufacturing Order processing Customer service The company's direct labour rate is $20 per hour. Required: Using the company's ABC system, compute the customer margin of Cell City. Customer margin Standard Model…

Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models: Activity Cost Pool Supporting manufacturing Order processing Customer service Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months: Number of cases Number of orders Direct labour-hours per case Selling price per case Direct materials cost per case The company's direct labour rate is $19 per hour. Sales Costs: Activity Rates $3 per direct labour-hour $15 per order $50 per customer Direct materials Direct labour Supporting manufacturing Order processing Customer service Customer margin Standard Deluxe Model Model 120 35 23 ta ta OSOF 0.20 $ $ 5 35 10 64 $9 $ Required: Using the…

Johnson and Gomez, Incorporated, is a small firm involved in the production and sale of electronic business products. The company is well known for its attention to quality and innovation. During the past 15 months, a new product has been under development that allows users improved access to e-mail and video images. Johnson and Gomez code named the product the Wireless Wizard and has been quietly designing two models: Basic and Enhanced. Development costs have amounted to $189,000 and $270,000, respectively. The total market demand for each model is expected to be 45,000 units, and management anticipates being able to obtain the following market shares: Basic, 20 percent; Enhanced, 15 percent. Forecasted data follow. Projected selling price Per-unit production costs: Direct material Direct labor Variable overhead Basic $ 370.00 47.00 25.00 41.00 200,000 Enhanced $ 470.00 15% 75.00 35.00 53.00 325,000 Marketing and advertising (fixed but avoidable) Sales commissions" *Computed on the…

Lead Time iSounds Inc. manufactures electronic stereo equipment. The manufacturing process includes printed circuit (PC) board assembly, final assembly, testing, and shipping. In the PC board assembly operation, a number of individuals are responsible for assembling electronic components into printed circuit boards. Each operator is responsible for soldering components according to a given set of instructions. Operators work on batches of 20 printed circuit boards. Each board requires 5 minutes of board assembly time. After each batch is completed, the operator moves the assembled boards to the final assembly area. This move takes 10 minutes to complete. The final assembly for each stereo unit requires 16 minutes and is also done in batches of 20 units. A batch of 20 stereos is moved into the test building, which is across the street. The move takes 20 minutes. Before conducting the test, the test equipment must be set up for the particular stereo model. The test setup requires 25…