Module 3 – Case TRANSFER PRICING AND RESPONSIBILITY CENTERS Assignment Overview Coffee Maker’s Incorporated (CMI) Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and

Module 3 – Case TRANSFER PRICING AND RESPONSIBILITY CENTERS Assignment Overview Coffee Maker’s Incorporated (CMI) Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and
Module 3 – Case TRANSFER PRICING AND RESPONSIBILITY CENTERS Assignment Overview Coffee Maker’s Incorporated (CMI) Three 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 refuses to do so. 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 at a lower cost and increase profitability. The current pattern is that Division A purchases 2,700 units of product part 101 from Division C (the supplying division) and another 1,300 units from an external supplier. Division B purchases 1,100 units of Part 201 from Division C and another 700 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 be found for these products in the short term, given that supply is greater than demand in the market. Division A will buy 2,000 units of Part 101 from Division C at the existing transfer price; and 2,000 units from an external supplier at the market price of $900 per unit. Division B will buy 900 units of Part 201 from Division C at the existing transfer price; and 900 units from an external supplier at $1,800 per unit. Division C Data Based on the Current Agreement Part 101 201 Annual volume (units) 2,700 1,100 Transfer price/unit $1,000 $2,000 Variable expenses/unit $700 $1,200 The fixed overhead for Division C is $1,200,000. Case Assignment Required: Computations (use Excel) Set up a table similar the one below to compute the difference between the current situation and the proposal for Divisions A and B.  Division A Current Situation Proposal No. of Units Purchase Price Total Purchases No. of Units Purchase Price Total Purchases Internal purchases 2,700 2,000 External purchases 1,300 2,000 Total cost for Part 101 Savings to Div. A Compute the operating income for Division C under the current agreement and the proposed agreement. Is the revised agreement a good idea? Support your answer with computations. Memo (use Word) Write a 4- or 5-paragraph memo to the division manager explaining the analysis performed. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading. Short Essay (use Word) Start with an introduction and end with a summary or conclusion. Use headings. 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? Assignment Expectations Each submission should include two files: (1) An Excel file and (2) a Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner. 
Module 3 – Case TRANSFER PRICING AND RESPONSIBILITY CENTERS Assignment Overview Coffee Maker’s Incorporated (CMI) Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and
Module 3 – SLP TRANSFER PRICING AND RESPONSIBILITY CENTERS Third part of the presentation. See background information for the Module 1 SLP. Required: Include the following items in your presentation. The organization is currently centralized, but is reviewing options to put a decentralized structure in place. You are asked to comment on responsibility centers and their functions. Cost centers can be a drain on an organization. Could internal charge backs be implemented? Present specific ideas. Comment on the role of business analytics in a growing decentralized organization.  SLP Assignment Expectations Submit a PowerPoint presentation or a Word Document. A PowerPoint presentation should have no more than six slides and a Word document cannot exceed two pages. Use words, tables, and graphs to make a succinct presentation. Document all sources and provide links at the end. It is acceptable to add another slide or page to list the sources. Combine the submissions from prior module(s) into one file before uploading to the SLP 3 Dropbox.
Module 3 – Case TRANSFER PRICING AND RESPONSIBILITY CENTERS Assignment Overview Coffee Maker’s Incorporated (CMI) Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and
Module 4 – SLP BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS Fourth and final part of the presentation. See background information for the module one SLP. Required: Make comments and suggestions on the following topics in your presentation. Enterprise and corporate performance management. Behavioral change management. The balanced score card. How to foster goal congruence for the organization and employees. SLP Assignment Expectations Submit a PowerPoint presentation or a Word Document. A PowerPoint presentation should have no more than six slides and a Word document cannot exceed two pages. Use words, tables, and graphs to make a succinct presentation. Document all sources and provide links at the end. It is acceptable to add another slide or page to list the sources. Combine the submissions from prior module(s) into one file before uploading to the dropbox.
Module 3 – Case TRANSFER PRICING AND RESPONSIBILITY CENTERS Assignment Overview Coffee Maker’s Incorporated (CMI) Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and
Module 4 – Case BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS Assignment Overview T&P Fashion Shops T&P Fashion Shops is a new chain that operates 10 stores in major malls throughout the United States. Each store manager is responsible for preparing a flexible budget for the store. T&P headquarters accumulates and analyzes the information for each store and in the aggregate. Below is the forecast (budgeted income statement) for the Houston store showing the breakdown of fixed and variable expenses in columns two through four. The last column shows the actual results.  T&P Fashions – Houston Store Breakdown of Expenses (Forecast) Forecast Fixed Variable Actual Revenues $1,400,000 $1,260,000 Cost of Sales 790,000 790,000 760,000 Gross Profit $610,000 $500,000 Management 182,000 154,700 27,300 182,000 Shop assistants 258,000 154,800 103,200 262,000 Rent 23,200 18,560 4,640 22,000 Utilities 34,800 34,800 31,000 Misc. expenses 24,500 12,250 12,250 29,000 Total expenses $522,500 $526,000 Net income $87,500 $(26,000) ========= ========= Additional Information Variable expenses are based on revenues and we assume that the percentage remains constant for flexible budgeting purposes. Fixed costs are all within the relevant range. Other expenses are all specific to this store. Headquarters pay for marketing and corporate overhead expenses. Case Assignment Required: Computations (use Excel) Prepare a flexible budget and show variances for the year that passed. Indicate whether the flexible budget variances are favorable or unfavorable. Headquarters are contemplating charging each store a 5% marketing expense based on sales. How will that affect the operating profit of the store and the money available for managerial bonuses based on actual results for the past year? Summarize the information in a table. Memo (use Word) Write a 4- or 5-paragraph memo to the division manager explaining the flexible budget variances; how to interpret the information and what action, if any to take. Comment on the 5% marketing proposal too. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading. Short Essay (use Word) Start with an introduction and end with a summary or conclusion. Use headings. Discuss how to interpret static and flexible budget variances. What are the benefits of variance analysis? How can such analysis be detrimental rather than beneficial to the organization? Assignment Expectations Each submission should include two files: (1) An Excel file and (2) a Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner. 
Module 3 – Case TRANSFER PRICING AND RESPONSIBILITY CENTERS Assignment Overview Coffee Maker’s Incorporated (CMI) Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and
Module 3 – SLP CAPITAL BUDGETING AND THE COST OF CAPITAL For your Module 3 SLP assignment, continue to do research on the company that you wrote about for Modules 1 and 2. For this assignment, you will be estimating the weighted average cost of capital (WACC) for your chosen company. The final calculation will be fairly straightforward, as it involves just plugging in some numbers into an equation. However, the more challenging task will be finding the necessary numbers to plug into the formulas. You will need information such as the beta for your company, the bond-rating, and various information from its balance sheet. Links to some suggested Web pages for finding this kind of information is included in the instructions, but you might be able to find other sources of information. Go step by step and present your information for Steps 1-4 below in a Word document. Make sure to show all of your steps one by one and include the sources of your information: Find out your chosen company’s credit rating. Rating agencies such as Moody’s and Standard and Poor’s assign ratings to companies. AAA is high, AA is lower, BBB is even lower, etc. The higher the rating, the lower the cost of debt capital. Explain what your company’s credit rating is and the reasons for the high or low rating based on your research. Also, use the Fidelity Fixed Income Web page to find out what the current return is for a 30-year bond for a corporation with the rating that your company has. This yield will be the approximate cost of debt capital for your company. We will call the cost of debt RD. Now estimate the cost of equity for your company. First you will need the beta; you already found this for your Module 1 SLP. You will also need the three-month treasury bill yield, which we will use as our measure of the risk-free rate. This rate should be listed on the Fidelity Fixed Income Web page linked above. Finally, you will need the equity risk premium. You can find estimates of this on many Web pages including Fidelity Fixed Income or Gutenberg Research. It is usually around 5%. Once you have this information, you can estimate the cost of equity as the 30-year treasury bill yield rate plus beta multiplied by the equity premium:Cost of Equity = risk-free rate + Beta * (Equity Premium).Show your calculations. We will call the cost of equity RE. Now find out how much of the firm’s capital is equity and how much is debt. For the total value, look at the balance sheet for your company as found on Google Finance or a similar Web page. The total value of your company will be “total liabilities and shareholder’s equity.” The proportion of debt will be total liabilities divided by total value, which we will call D/V. The proportion of equity will be shareholder’s equity divided by total value, or E/V. If you calculate them correctly, the proportions will add up to one. Now we have all the information we need to get at least a rough ballpark estimate of WACC. Let’s assume a corporate tax rate of 35%. So the formula we will use is WACC = (E/V)* RE +(D/V)* RD *(1-.35)Calculate WACC and show your computations. As a “reality check” on your calculations, the WACC should likely be in the single digits and positive. Compare what you found to the average WACC in your company’s industry, which should be available on Web pages such as Cost of Capital by Sector (US). Note that 35% is the official corporate tax rate, but many corporations find tax breaks. If your WACC is too low, try computing it with a lower tax rate such as 25% or 10%.   SLP Assignment Expectations Answer the assignment questions directly. Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials. For computational problems, make sure to show your work and explain your steps. For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. Citation and reference style instructions are available at Trident University’s Introduction to APA Style, 7th edition . Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.
Module 3 – Case TRANSFER PRICING AND RESPONSIBILITY CENTERS Assignment Overview Coffee Maker’s Incorporated (CMI) Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and
Module 4 – SLP LEVERAGE, CAPITAL STRUCTURE, AND DIVIDEND POLICY Review the 1) dividends for the past three years and 2) capital structure of the company you have been researching for your SLP assignment. Then answer the following questions in a Word document (except for the Excel portion specifically noted). The paper should be 2 pages in length. What has occurred with your selected company’s dividend payout, dividend yield, and dividend per share over the past three years? Do you have any explanations for what has occurred? Also, has this company had any stock splits or stock repurchases in recent years? How does your selected company’s dividend payout, dividend yield, and dividend per share compare with other companies in its industry? Has the company’s dividend strategy been similar to other companies in its industry? Use Excel to plot your selected company’s earnings and dividends over the past three years. Do you notice any patterns? What dividend policies from the background readings best match these patterns? SLP Assignment Expectations Answer the assignment questions directly. Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials. For computational problems, make sure to show your work and explain your steps. For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. Citation and reference style instructions are available at Trident University’s Introduction to APA Style, 7th edition . Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.
Module 3 – Case TRANSFER PRICING AND RESPONSIBILITY CENTERS Assignment Overview Coffee Maker’s Incorporated (CMI) Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and
Module 4 – Case LEVERAGE, CAPITAL STRUCTURE, AND DIVIDEND POLICY Assignment Overview Before starting on this assignment, make sure to carefully review the background readings. Part A requires you to make some computations, and Part B requires you to analyze some scenarios using your knowledge of the concepts. So make sure to go through the computational examples in the required readings and also thoroughly review the key concepts before starting on this assignment. Case Assignment Part A: Quantitative Problems Suppose QuickCharge Corporation manufactures phone chargers. They sell their chargers for $20. Their fixed operating costs are $100,000 and their variable operating costs are $10 per charger. Currently they are selling 30,000 chargers per year. What is QuickCharge’s EBIT (earnings before interest and taxes) at current sales of 30,000? What is QuickCharge’s breakeven point? Calculate the EBIT if QuickCharge’s sales increase 50% to 45,000 chargers. What is the percent of change in EBIT under this increase in sales? Also, calculate the EBIT if the company’s sales decrease 50% to 15,000 chargers. What is the percent of change in EBIT under this decrease in sales? What is QuickCharge’s degree of operating leverage? Based on your computation, what does its operating leverage say about QuickCharge’s business risk? The StayDry Umbrella Corporation will have an EBIT of $100,000 if there is a normal amount of rain this year. But if there is a drought, they will have an EBIT of only $50,000. The interest rate on debt is 10%, and the tax rate is 35%. The company does not pay any preferred dividends. If StayDry has zero debt and 50,000 outstanding shares, what will its EPS (earnings per share) be if there is normal rain? What will its EPS be if there is a drought? What is its DFL (degree of financial leverage)? Now suppose StayDry has decided to take on $300,000 in debt and has used these funds to buy back half of the outstanding shares so now there are only 25,000 outstanding shares. What is the new EPS and DFL for both normal rain and drought? Based on your answers to a) and b) above, what are the trade-offs management has to make between zero debt or $300,000 in debt? What are the benefits and disadvantages of taking on this debt? Part B: Conceptual Questions For each of the following scenarios, explain whether the situation describes financial risk or business risk. Explain your answers to each scenario using at least one of the references from the background readings: A pharmaceutical company has developed a new cancer treatment drug that has a much higher success rate than other drugs currently in the market. It has the  potential to triple the company’s profits. However, the FDA has expressed concern about some side effects, and it is not clear if the FDA will approve the drug. An airline has an EBIT of $100 million per year. However, it also has a huge amount of debt and pays $97 million per year in interest. Its EBIT is relatively stable but tends to go up or down by $5 million or so each year depending on the economy. A basketball franchise earns an EBIT of $50 million a year when its team has a winning year. However, it earns only $10 million when its team has a losing year. Explain what capital structure theory (or theories) best describes the following situations. Make sure to cite at least one of the required textbook chapters for each answer, and to cite at least two references for this section: A CEO decides to borrow $50,000 in new debt, and the share prices rise dramatically. He then decides to sell half of his own personal shares, and when this is reported in the Wall Street Journal, the share prices drop dramatically in value. The corporate tax rate rises from 35% to 45%, and the XYZ Corporation decides to issue more debt. A year later, bankruptcy laws are changed to become much stricter and costlier. XYZ then decides to pay back half of its debt. A CEO named Joe Bigwig is known for living large with very expensive cars and a huge mansion. Joe is seeking a large loan from a bank to finance some new projects for his corporation. However, the bank becomes concerned when they find out that he recently used company funds to buy a brand-new company jet and also schedules numerous business trips to Hawaii and stays in five-star hotels. The bank tells Joe he will receive the loan only if he agrees to scale back on his personal expenses and not give himself or any other executives a raise until the loan is paid back. Assignment Expectations Answer the assignment questions directly. Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials. For computational problems, make sure to show your work and explain your steps. For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. Citation and reference style instructions are available at Trident University’s Introduction to APA Style, 7th edition . Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.
Module 3 – Case TRANSFER PRICING AND RESPONSIBILITY CENTERS Assignment Overview Coffee Maker’s Incorporated (CMI) Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and
Module 3 – Case CAPITAL BUDGETING AND THE COST OF CAPITAL Assignment Overview Before starting on this assignment, make sure to thoroughly review the required background materials. Make sure you fully understand both the basic concepts as well as how to calculate payback period, NPV, IRR, and WACC. Submit your answers in a Word document. Make sure to show your work for all quantitative questions and fully explain your answers using references to the background readings for any conceptual questions. Questions 1 and 2 will require Excel. Attach an Excel file to show your computations for Questions 1 and 2.   Case Assignment The table below gives the initial investment and expected cash flows over the next five years for two different projects. Assume that the industry you are in expects a return of 10%, which you use as the discount rate in net present value (NPV) calculations and as the required rate of return for purposes of deciding on projects. Also, assume that management only wants to invest in projects that pay off within four years. For each project, compute the payback period, NPV, and internal rate of return (IRR). Then explain whether each project should be accepted based on these three criteria.   Project A Project B Initial Investment $40,000 $28,000 Year Cash Flows 1 $10,000 $10,000 2 $10,000 $13,000 3 $10,000 $5,000 4 $10,000 $5,000 5 $10,000 $6,000 Suppose you are planning on becoming a vendor at the arena where your favorite sports team plays. You are trying to decide between opening up a souvenir stand selling T-shirts, caps, etc., with your sports team’s logo or opening up a hot dog and beer stand. It is more expensive to open up the hot dog and beer stand because you need to purchase a license to serve alcohol and you need to spend money to comply with health department regulations. Revenue from the souvenir stand is likely to be unpredictable because fans of your favorite team tend to want to purchase hats and T-shirts only when the team is winning. Revenue from hot dogs and beer seem to be a little more steady since fans want to eat and drink regardless of whether the team is winning.Below is a table with the initial investment cost of each type of stand and the annual payments you expect over the next five years. The annual payments will be different depending on how well your team does. Therefore, you will estimate how much cash flow you will get depending on whether your team does better than expected (optimistic), the same as the past few years (most likely), and worse than expected (pessimistic). Use a discount rate of 8%. Based on the table below, answer the following items: Calculate the net present value (NPV) for each type of stand under each of the three scenarios. Calculate the range of possible NPV values for each type of stand. Based on your answer to A) above and your own guesses about how well you think your favorite team will do over the next five years, which type of stand would you rather invest in?   Souvenir Stand Hot Dog and Beer Stand Initial Investment $100,000 $150,000    Annual Cash Inflows (5 Years) Outcome      Pessimistic $30,000 $50,000  Most likely $50,000 $60,000  Optimistic $70,000 $70,000 Suppose you are a corn farmer in your home state. You have to decide between two projects. One project is to purchase new equipment for your farm that will help boost your profits for the next 10 years. You also find out that you can purchase a large banana farm in Brazil for the same price as the equipment, and at the current market price for bananas you will make a lot more profit than you would from purchasing new corn farming equipment.After asking around, you find out that the standard discount rate for evaluating the NPV of the farming project is 6%. Most farmers in your home state seem to use this rate successfully. However, you don’t know any other banana farmers and you don’t know too much about farming in Brazil, so you have to make a guess on an appropriate discount rate for the Brazilian banana farm. Based on the concepts from the background readings, would you say the Brazilian banana farm will need a lower or higher discount rate? A lot larger or smaller, or only a little? Calculate the following: The cost of equity if the risk-free rate is 2%, the market risk premium is 8%, and the beta for the company is 1.3. The cost of equity if the company paid a dividend of $2 last year and is expected to grow at a constant rate of 7%. The stock price is currently $40. The weighted average cost of capital (WACC) if the company has a total value of $1 million with a market value of its debt at $600,000 and a market value of its equity at $400,000. Its cost of debt is 6% and its cost of equity is 15%. The tax rate it pays is 25%. Suppose you own a chain of dry cleaners and the WACC you’ve been using to make decisions on new purchases of dry cleaning equipment is a steady 9%. Recently, gambling has been made legal in your home town so you decide to expand and open up a casino. Should you use the same WACC to evaluate purchases of casino equipment? Why or why not? What are some alternatives to using the same WACC to make decisions on casino equipment? Explain your reasoning, and make references to concepts from the background readings.   Assignment Expectations Answer the assignment questions directly. Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials. For computational problems, make sure to show your work and explain your steps. For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. Citation and reference style instructions are available at Trident University’s Introduction to APA Style, 7th edition .  Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.
Module 3 – Case TRANSFER PRICING AND RESPONSIBILITY CENTERS Assignment Overview Coffee Maker’s Incorporated (CMI) Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and
Discussion: NPV in Your Own Life   Previous Next  Reading about Net Present Value (NPV) for this module, you probably thought of it as a technique used only by corporations. But the technique may also apply to your own purchases. You may have heard a salesperson tell you, “This product pays for itself!” While this is probably rare for most products, sometimes there are future savings from certain products that will offset some of the costs. For example, if you buy a newer, more reliable, and more fuel-efficient car, it may save you on repair bills and gas prices compared with your old car. If you are a coffee connoisseur, buying a $100 espresso machine might save you money compared with constantly buying $4 drinks at your local Starbucks. Think of a purchase you are planning to make or have recently made. How much did it cost? How much per year do you think you will save from this purchase, and for how many years will you get these savings? Estimate the present value of the savings, and subtract the cost of the product. Note that it is rare that any purchase will “pay for itself” (e.g., have a positive NPV). But are the savings enough that the product becomes a lot “cheaper” and more worthwhile for you to buy?
Module 3 – Case TRANSFER PRICING AND RESPONSIBILITY CENTERS Assignment Overview Coffee Maker’s Incorporated (CMI) Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and
Discussion: Trends in Management Accounting   Previous Next  The Institute of Management Accountants (IMA) has a series of YouTube Videos on Trends in Management Accounting. We will continue to review and discuss some of these trends to learn about developments in this field for discussions in this course. Listen to the following two videos in the IMA series:   Required: Comment and expand on a topic discussed in the videos and provide a real world example from the news or your own experience. Presence during both weeks of the module and a minimum of three postings are expected, one original posting and two responses to colleagues. Minimum required participation does not guarantee a perfect score. ALL RIGHTS RESERVED CONTENT 7 Trends in Management Accounting – Trend 4. Authored by: IMA. Located at: https://youtu.be/1vZpk1-8cWE. License: All Rights Reserved. License Terms: Standard YouTube License 7 Trends in Management Accounting – Trend 5. Authored by: IMA. Located at: https://youtu.be/7iQLVxRVwH4. License: All Rights Reserved. License Terms: Standard YouTube License