Group Case Study: General Instrumentation Company

719 Words3 Pages
Group Case Study #2
From the perspective of General Instrumentation's top management, the company can produce the TCH–320 by using the high-density panel. Therefore, it is more beneficial to the company to produce the TCH-320 by using the HDP from internal transfer rather than purchase the control pack currently imported from Asia. Since The company has a limited supply of skilled labor available, the division must constrain its production to 40,000 hours of skilled labor each year. Therefore, the skilled labor hours available to the company should be used in the best possible manner in order to maximize net operating profit.
- If the company plans to use all the 40,000 hours of skilled labor each year to produce the
TCH-320 by using the
…show more content…
This is, the transfer price will be an income to Hudson Bay, which is the selling division, and it will be a cost for Volkmar construction Instruments, the buying division. It will only affect each division’s profit and the evaluation of its performance. As for General Instrumentation Company, there is no effect because both divisions are under the same umbrella of the company. This is, transfer pricing will show that it is a revenue in one division, and it matches as expenses in another division. As a result, transfer pricing does not show an overall effect on a company’s income. However, the most important thing that we can measure the company’s success is that we should take into account about the all level of management decision making, effective performance measurement, and appropriate investment decisions when we are practicing the transfer pricing…show more content…
The external sale is 6,000 units since the demand from the Volkmar Tachometer Division is 10,000. So the Hudson Bay Division has a sufficient idle capacity, which is 26,666-6,000=20,666.
- As a result , the transfer price is $70 4. The maximum transfer price that the Volkmar Tachometer Division would accept for the
HDP:
- Transfer Price ≤ Cost of buying from outside supplier - If TCH-320 is produced using HDP, the saving includes imported control pack $145.00, other raw material $5.5 , while the additional costs if using HDP includes transportation cost $4.5 and skilled labor $34 (2hr*$17) - The total saving :$145.00 +$5.5 =$150.5 - Additional costs : $4.5 +$34= $38.5 - Net saving : Total saving - additional costs :$150.5-$38.5 = $112 - Therefore, The Maximum transfer price is $112 since if it reaches $112 there is no difference between an import control pack or using HDP

5. As the corporate controller for General Instrumentation, we recommend a transfer price with our detailed
Get Access