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Shuman Automobiles, Inc.

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UNIVERSITY OF THE PHILIPPINES
Institute of Management
College of Social Sciences

SHUMAN AUTOMOBILES, INC.
RESPONSIBILITY ACCOUNTING
TRANSFER PRICING

Submitted By:
Ame, Donna Mae B.
Dela Pena, Melissa S.
Dulad, Jhune E.

Submitted to:
Sir Jay Stephen Siy

12 October 2006

CASE 22 – 1 : SHUMAN AUTOMOBILES, INC.
Responsibility Accounting & Transfer Pricing

Facts of the Case:
1. Clark Shuman, owner and general manager, plans to retire and relinquished his control over the company
2. Business has been doing good with an emphasis of selling new cars as the principal business of the dealership
3. He created three independent departments, namely new car sales, used car sales, and service department.
4. Salary is dependent on each department's …show more content…

• These two managers should absorb the cost they failed to consider and the service center charges should not be compromised because of these failures.
• So as per the facts of the case, Bianci is charging the used car department 2,000 for the repairs of the old car and we see it deemed fair enough because it was based on the blue book.

Wholesale after reconditioning 7,100 Market price of repairs -2,000 Trade-in value of unrepaired 5,100

b. In your opinion, how much should the service department be able to charge the used-car department for the repairs on this trade-in car? Why?

Transfer Price = Outlay Costs + Opportunity Costs = (Cost of repairs + Cost of axle replacement) + OpC = 1594 + 406 Transfer Price = 2000

c. Given your responses to a and b, what will be each department's incremental gross profit on this deal?

Wholesale after reconditioning 7,100 Market price of repairs -2,000 Trade-in value of unrepaired 5,100

NEW USED SERVICE
List price of new car 14,400
Allowance for the used car -6,500
Cost of new car

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