Section-A
Question1)“Value Chain Analysis can provide valuable inputs for management control”. Do you agree with this statement? Why or why not?
Question2) Explain briefly the following terms:
i) Elements of Control Process
ii) Cost-Based Transfer Prices
iii) Functions of the Controller
Question3) What is ‘Transfer Price’ and what are the different methods of determining it?
Question4) What is ‘Goal Congruence’? Elaborate
Section-B
Case Study
Division P of Action Shoe company manufactures product “ α “, that is sold to Division Q as the component of product “β”. Product “β” is sold to Division R, that uses it as the component in product “γ” . Product “γ” is sold to customers outside the company. Intra company pricing rule is that products are transferred between divisions at standard cost plus a 10% return on inventories and fixed assets. From information given below, compute transfer price for product “α” and “β” and standard cost of product “γ”
Standard cost per unit
Product “α” Product “β” Product “γ”
Material purchased outside Rs. 2.00 Rs. 3.00 Rs.1.00
Direct labour 1.00 1.00 2.00
Variable overhead 1.00 1.00 2.00
Fixed overhead per unit 3.00 4.00 1.00
Standard volume 10,000 10,000 10,000
Inventories (average) Rs. 70,000 Rs. 15,000 Rs. 30,000
Fixed assets (net) 30,000 45,000 16,000