Chemical Bank

1284 Words Mar 11th, 2015 6 Pages
Case Study: Chemical Bank * Sunil Rabertson Chikkala
PGXPM11

1) Describe the due bill controversy and how do you resolve it?

Below Four divisions of Chemical Bank involved in Due bill controversy: * Treasury Group * Metropolitan Division * Trust and Investment Division * Finance Division
Treasury Group was responsible for investing Due Bill funds in greater interest generating markets and for trading in secondary market. Metro Division sells Due bills to customer; Trust & Investment division involved in setting up Due bills accounts and in providing Data processing services. Finance division was responsible for Cost and profit allocation between divisions.
There were two reasons led to conflict between
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For Treasury division, Due Bills was huge profit generating product, managers/traders in that division were keen on increasing Due Bill sales volume and there by profits. Whereas for Metro division it was yet another product under many business/individual deposits they are dealing with. Considering costs associated and amount of work involved with Due Bill, it was not critical to meet their goals.

To resolve this problem, Firstly I will analyze gaps in system in terms of cost allocation, revenue sharing , transfer price and create a strategy to address gaps, motivate teams across divisions to work towards company objectives.

2) What is the transfer price from metro branches to the treasury and vice-versa?

Transfer pricing necessarily results from the exchanges of goods and services among the decentralized units of company. a) Transfer prices are the monetary values assigned to these exchanges are transfers. b) Fundamentally, all cost allocation is a form of transfer pricing. * Minimum Transfer price = Outlay cost + opportunity cost to the company as a whole

As per the exhibit 4:

Assuming opportunity cost is zero as exchange of services was between the divisions of same company. a) As per exhibit -4, there was no cost allocation between Treasury and Metro divisions, hence transfer price will be:
Treasury to Metro was $0
Metro to treasury was $0 b) Considering

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