المحاسب الإداري المعتمد الجزء 1 F. Technology and Analytics

A production-system pilot and divisional prices

Caldrin Sensor Systems

Questions: 6 Answered:

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Question of 6 A production-system pilot and divisional prices

A production-system pilot and divisional prices Case-based question

The case

Caldrin Sensor Systems makes industrial controller modules. Its Components Division manufactures modules, and its Assembly Division can buy modules either internally or from an independent supplier. The company is piloting a new manufacturing and accounting system to support production scheduling, inventory valuation, and management reporting.

The pilot uses the following costs per module at normal production capacity:

Cost	USD per module
Direct materials	42
Direct labor, variable with output	28
Variable manufacturing overhead	18
Fixed manufacturing overhead allocated at normal capacity	12
Variable selling and administration	9
Fixed selling and administration allocation	6

For the upcoming quarter, Components has enough otherwise idle capacity to supply all modules requested by Assembly. Internal production would not displace outside sales or require any additional fixed cost. Internal transfers require special packing that costs Components an additional $2 per module; the listed selling and administration costs do not arise from an internal transfer. Assembly can instead buy an equivalent module from an outside supplier for an all-inclusive delivered price of $116. An internally sourced module requires an additional $3 inspection cost at Assembly that an outside purchase does not require.

Divisional managers are evaluated on their own operating income. The pilot will present internal transfer alternatives for a management decision; it does not determine statutory prices or tax outcomes.

Assumptions

Apply U.S. GAAP absorption-costing principles to inventory; production is at normal capacity with no abnormal waste or idle-capacity adjustment.
All modules are identical in quality and suitability regardless of supplier.
For the transfer decision, all listed variable production costs are incremental; fixed manufacturing cost is unchanged and there is no opportunity cost from lost outside sales.
The $2 special packing and $3 additional inspection apply only to internal transfers. Outside supplier price of $116 includes all costs Assembly would otherwise incur to acquire the outside module.
Ignore taxes, tariffs, currency movements, and any legal transfer-pricing requirements; analyze internal managerial incentives only.
For information-system classification, purchasing raw materials and paying suppliers belong to the expenditure cycle; delivering finished goods, invoicing customers, and collecting receivables belong to the revenue cycle. Production planning, recording labor time against work orders, and production cost accumulation belong to the production cycle.

Using the cycle boundaries stated in the case, select THREE activities that belong in Caldrin's production-cycle module.

Select 3 answers. Selected 0 / 3

Answer Approve supplier invoices for raw-material purchases and release payment. Plan work orders and schedule factory operations. Create customer invoices after finished modules are shipped. Capture direct labor time against manufacturing work orders. Accumulate material, labor, and overhead costs for completed modules. Maintain the customer collection schedule for overdue receivables.

Why would Caldrin retain a variable-costing view for internal analysis while using absorption costing for external inventory reporting?

Answer Variable costing ensures that every fixed manufacturing dollar is included in the cost of ending inventory. Variable costing makes selling expenses eligible for capitalization as inventory. Variable costing separates variable costs from period fixed costs, making contribution and volume effects easier to analyze. Variable costing proves that any selling price above variable production cost is profitable over the long run.

Before any special internal-transfer packing is performed, what is the absorption-costing inventory value per completed Caldrin module under the normal-capacity assumptions? Enter whole USD per module.

Answer USD per module

A whole number.

Select TWO preventive input controls for Caldrin's pilot that check a transaction before the system accepts it.

Select two answers. Selected 0 / 2

Answer Reject a production entry if its item code is not in the approved item master. Compare the completed cost report with the general ledger after the accounting run. Distribute the completed inventory valuation report only to authorized managers. During the costing run, verify that every accepted work order is processed exactly once. Require the quantity field to contain a permitted numeric value within the authorized entry range.

For the proposed internal transfer, Components' minimum acceptable price is Seller's minimum acceptable price per module, based on Seller's relevant cost basis . Assembly's maximum acceptable transfer price is Buyer's maximum acceptable transfer price per module, based on Buyer's outside-alternative adjustment . At either boundary the respective division is indifferent; a price strictly between the boundaries improves both divisions' income relative to their stated alternatives.

Caldrin is testing three transfer-price policies. Match each description to its pricing method. Classify the stated mechanism, without assuming that every mechanism always produces an economically optimal price.

Components charges Assembly exactly what each additional module costs it to make and pack for transfer, with no markup or opportunity-cost addition.

The two divisional managers agree on a price themselves after weighing each division's alternatives and bargaining position.

The policy uses the price at which an equivalent module trades between independent parties in a competitive setting, adjusted for documented transaction differences.

The marks, the correct answers and the explanations appear as soon as the answers are submitted. Unanswered questions earn no marks.

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