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Assignment Questions

Coffee Maker’s Incorporated (CMI)

Coffee Maker’s Incorporated (CMI).Two divisions of a CMI are involved in a dispute. Division A purchases Part 101 and Division B purchases Part 201 from a third division, C. Both divisions need the parts for products that they assemble. The intercompany transactions have remained constant for several years.Recently, outside suppliers have lowered their prices, but Division C is not lowering its prices. In addition, all division managers are feeling the pressure to increase profit. Managers of divisions A and B would like the flexibility to purchase the parts they need from external parties to lower cost and increase profitability.The current pattern is that Division A purchases 3,000 units of product part 101 from Division C (the supplying division) and another 1,000 units from an external supplier. The market price for Part 101 is $900 per unit. Division B purchases 1,000 units of Part 201 from Division C and another 1,000 units from an external supplier. Note that both divisions A and B purchase the needed supplies from both the internal source and an external source at the same time.The managers for divisions A and B are preparing a new proposal for consideration.?Division C will continue to produce Parts 101 and 201. All of its production will be sold to Divisions A and B. No other customers are likely to found for these products in the short term given that supply is greater than demand in the market.?Division C will manufacture 2,000 units of Part 101 for the Division A and 500 units of Part 201 for the Division B.?Division A will buy 2,000 units of Part 101 from Division C and 2,000 units from an external supplier at $900 per unit.?Division B will buy 500 units of Part 201 from Division C and 1,500 units from an external supplier at $1,900 per unit. Division C Data 2012 Based on the Current AgreementPart101201Direct materials$200$300Direct labor$200$300Variable overhead$300$600Transfer price$1,000$2,000Annual Volume3,000 units1,000 unitsRequired:?Calculate the increase or decrease in profits for the three divisions and the company as a whole (four separate computations) if the agreement is enforced. Explain your thought process, comment on the situation, and make a suggestion based on the computations you have made.?Evaluate and discuss the implications of the following transfer pricing policies: ?Transfer price = cost plus a mark-up for the selling division?Transfer price = fair market value?Transfer price = price negotiated by the managers?Why is transfer pricing such a significant issue both from a financial and managerial perspective? Modular Case Assignment ExpectationsIt is important to answer the questions as posed. The discussion should be from 3 to 5 pages and written in a clear and concise manner. Support your discussion with references in APA format. You are encouraged to use Excel or other compatible spreadsheet when computations are involved.Please include citation and reference

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