An Australian company has two manufacturing plants, one in Australia and the other in a Southeast Asian country. Both produce the same product, each for sale in their respective countries. However, their labour productivity and capital productivity figures are quite different. The analyst thinks this is because the Australian plant uses more automated equipment for processing while the other plant uses a higher percentage of labour. In your own words, explain how the aforementioned factors can cause productivity figures to be misleading. Is there another way to compare the two plants that would be more meaningful?

An Australian company has two manufacturing plants, one in Australia and the other in a Southeast Asian country. Both produce the same product, each for sale in their respective countries. However, their labour productivity and capital productivity figures are quite different. The analyst thinks this is because the Australian plant uses more automated equipment for processing while the other plant uses a higher percentage of labour. In your own words, explain how the aforementioned factors can cause productivity figures to be misleading. Is there another way to compare the two plants that would be more meaningful?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 7Q: Many outsourced jobs have resulted in offshoring jobs, rather than using domestic outsourcing. If a...

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The manager of a microchip (chip for short) manufacturing firm can choose from various production technologies and must determine whether or not to (a) move part of their production to a foreign plant, and (b) use the same technology in their foreign plant that they use in their domestic plant. Chip manufacturers can produce using either sophisticated equipment and relatively few workers (prevalent choice in the US) or many workers and less complex equipment (prevalent choice abroad). U.S. chip firms have been moving much of their production abroad for many years. Worldwide sales of chips made in the U.S. dropped from 66% in 1976 to 34% in 1998, and to 17% in 2011, then rose slightly to 21% in early 2015. U.S. chip firms moved their production abroad because of lower taxes, lower labor costs, and capital grants provided by foreign governments. These grants reduce the cost of operating a foreign facility by as much as 25%, compared to the costs of running a U.S. plant.…
Bulldogs Inc. wants to enter the global market. Which one may not be the reason in such decision? Production efficiency in other countries may result to economies and synergies that are favorable to the company To seek technologies not yet present in the home country To broaden market and increase shareholder value Essential materials and labor rates may be more expensive in other countries
Which of the following is NOT a reason why companies move into international operations? a. To better serve their primary customers. b. To take advantage of lower production costs in regions where labor costs are relatively low. c. To increase their inventory levels. d. Because important raw materials are located abroad. e. To develop new markets for the firm's products.
Many outsourced jobs have resulted in offshoring jobs, rather than using domestic outsourcing. If a U.S. company wants to offshore a service like customer service, for example, what are some of their considerations? In your answer, address offshoring disadvantages as compared with domestic outsourcing.
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. 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What should these tax accountants do if requested to develop a questionable taxminimization scheme?
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17. Companies are involved in exporting their product to different parts of the world then setting up a producing facility abroad. Explain what are the advantages and limitation of such strategy.
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What are some of the qualitative factors that Riverside Clippers Corp should consider when deciding whether to outsource the garden tools manufacturing to Taiwan?