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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Ethics and professional conduct in business

Sisel Company has two divisions, the Optic Lens Division and the Camera Division. The Camera Division may purchase lenses from the Optic Lens Division or from outside suppliers. The Optic Lens Division sells products both internally and externally. The market price for lenses is $2,500 per carton (100). Newt Watt is the controller of the Camera Division, and Tani Trudeau is the controller of the Optic Lens Division. The following conversation took place lietween Newt and Tani:

Neul: I hear you are having problems selling lenses out of your division. Maybe I can help.
Tani You've got that right. We're producing and selling at about 75% of our capacity to outsiders. Last year we were selling at capacity. Would it be possible for your division to pick up some of our excess capacity? After all, we are part of the same company.
Newt; What kind of price could you give me?
Tani: Well, you know as well as I that we are under strict profit responsibility in our divisions,
so I would expect to get market price. $2,500 per carton (100).
Neu1: I'm not so sure we can swing that. I was expecting a price break from a "sister" division.
Tani: Hey, I can only take this "sister" stuff so far. If I give you a price break, our profits will fall from last year's levels. I don't think I could explain that. I'm sorry, but I must remain firm— market price. After all, it's only fair—that's what you would have to pay from an external supplier.
Newt; Fair or not, I think we'll pass. Sorry we couldn't have helped.
Was Newt behaving ethically by trying to force the Optic Lens Division into a price break? Comment on Tani's reactions.

To determine

Concept Introduction:

Transfer Price:

Transfer Price is a price at which one division of a company transfers its goods to another division of the same company.

Morals are judgments, standards, and rules of good conduct in the society. They guide people toward permissible behavior with regard to basic values. Business ethics are business policies and practices which are made to conduct a business in an ethical and moral way. Ethics can be found it laws but some are developed with the situations and moral and acceptable social behaviors.

To Indicate:

If it is ethical to force the division for a transfer price

Explanation

Transfer Price is a price at which one division of a company transfers its goods to another division of the same company.

Morals are judgments, standards, and rules of good conduct in the society. They guide people toward permissible behavior with regard to basic values...

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