Information Systems Corporation: Transfer Prices and Goal Congruence

The plant’s costs for the semiconductors are higher than the competitor’s market prices since its manufacturing costs are primarily fixed. This means that the cost per unit depends on how much is produced. The more semiconductors produced, the lower the cost per unit will be. On the reverse, the lesser the units produced, the higher the cost per unit will be. With the influx of high quality semi-conductors from the non-US companies with a price at or below that of the Semiconductor division, the product divisions began buying from external sources instead of purchasing within the company.

Since the production of the Semiconductor division is responsive to the demand for its products, it lessened its production as the demand declined resulting to a higher cost per unit for the semiconductors produced. Question 2: The controller should consider encouraging the product divisions to purchase from the Semiconductor division up to the latter’s unused capacity and purchasing the rest from external suppliers since this provides for better goal congruence. Since the Semiconductor division is operating with an unused capacity, it will not incur additional costs to accommodate such orders.

Don't use plagiarized sources. Get Your Custom Essay on
Information Systems Corporation: Transfer Prices and Goal Congruence
Just from $13/Page
Order Essay

The production divisions will even be helping the Semiconductor division to lower its cost per unit. Also since it is an interdivisional transfer, it has no net effect on Information Systems Corporation as a whole. With respect to the other needed quantities, it would better serve the interest of the company if the production divisions purchase from external suppliers who offer lower prices since in such a case, the Semiconductor will need to incur additional costs to accommodate the extra orders.
Compared to the present scenario where the production division managers purchase all the standard semiconductors from external suppliers which results to sub-optimization, or the situation that transpires when managers do not act in the best interests of the company as a whole (Garrison & Noreen, 2000), the proposed alternative is more beneficial for the Information Systems Corporation as a whole. In connection with this suggestion, the company should consider revising its policy of evaluating its profits centers on profitability alone by taking into consideration other factors such as the above mentioned.
Question 3: All transfer pricing methods has its share of its disadvantages be it negotiated, at cost or at market price. For the case of Information Systems Corporation, the recommended method would be the negotiated transfer prices. This method maintains the independence of the divisions consistent with the spirit of decentralization and is also conducive to more informed managers with regard to the costs and benefits of the transfer to the Information Systems Corporation as a whole (Garrison & Noreen, 2000).
Given that in committing to buy RAMS from the Semiconductor division the production division managers are not assured that the cost and price will not increase later should the selling division fail to meet the planned volumes or its cost objectives, coupled with the reasonable assumption that both divisions will act to maximize their respective profits, the negotiated transfer pricing best provides for better goal congruence.
Both the selling and purchasing divisions will be acting in the best possible manner for their respective segments since they are being evaluated as profit centers at the same time the company’s overall goal is observed at their levels, resulting to an overall benefit for Information Systems Corporation. Reference Garrison, R. H. , & Noreen, E. W. (2000). Managerial Accounting Ninth Edition. United States of America: Irwin McGraw-Hill.

Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more
Live Chat+1(978) 822-0999EmailWhatsApp

Order your essay today and save 20% with the discount code LEMONADE