Graphic Art, Inc.Transfer Pricing Methods
Full Cost Variable Cost
Print Division (China):
Transfer Price
1,500
1,000
(1,500)
(1,500)
0
(500)
Less: Cost
Taxable Income
Income Taxes (or
refund)
20%
(100)
Retail Division
(Greece):
Sales Price
2,000
2,000
(1,500)
(1,000)
500
1,000
250
500
150
100
400
600
400
500
Less: Transfer Price
Taxable Income
Income Taxes
Import Duty
50%
10%
Taxes in Retail Division
Total Taxes
China Tax Rate
Greece Tax Rate
Import Duty
20%
50%
10%
Full Cost
1,500
Variable Cost
1,000
Sales Price
2,000
©2015 Walden University
1
Investment Proposals
Net present value (NPV)
Internal rate of return
(IRR)
Payback
Accounting rate of return
(ARR)
©2015 Walden University
Project A
Project B
$ 510,000
$ 650,000
16%
3.50
17%
3.25
25%
18%
1
Jaden Water Inspection Service
Revenue – Variable costs – Fixed costs = Profit
At break-even, the profit is zero
Revenue – Variable costs – Fixed costs = 0
P = price, Q = quantity, VC = variable costs, FC = fixed costs
PQ – VC – FC = 0
150Q – 45Q – 3,000 = 0
105Q = 3,000
Q = 28.57 which is rounded to 29 inspections
©2015 Walden University
1
Widget Company
Manufacturing Overhead Performance Report
For Month Ended June 20XX
Static
Budget at
6,000 units
Revenue
$
60,000
Actual
$
63,240
Variance
(Actual—Static
Budget)
$
3,240 F
Flexible
Budget at
6,500 units
$
65,000
Variance
(Actual—
Flexible
Budget)
$ (1,760) U
29,250
1,950 U
Less:
Variable costs
Contribution Margin
27,000
$
33,000
31,200
$
32,040
4,200 U
$
(960) U
$
35,750 $
(3,710) U
Less:
Fixed costs
Profit
©2015 Walden University
24,000
$
9,000
25,000
$
7,040
1,000 U
$
(1,960) U
$
24,000
1,000 U
11,750
$ (4,710) U
1
Instructions
Before submitting your Assessment, carefully review the rubric. This is the
same rubric the assessor will use to evaluate your submission and it provides
detailed criteria describing how to achieve or master the Competency. Many
students find that understanding the requirements of the Assessment and the
rubric criteria help them direct their focus and use their time most productively.
Rubric
Access the following to complete this Assessment:
•
•
•
•
Widget Company Performance Report
Investment Proposals
Graphic Art
JWIS Break-Even Analysis
This assessment has six-parts. Click each of the items below to complete this
assessment.
Part 1: Ensuring Accurate Financial Data
Scenario
You work for a company that has recently experienced a case of
embezzlement. The management team is looking for ideas on how it can
prevent this from happening in the future and has asked you to present ideas
during its next monthly meeting. Using the following case, prepare a 10-slide
presentation that presents the details of the case and ideas for how the
company could have prevented the embezzlement. Include details on how the
company can ensure accurate financial data.
Jared Smith has served as the executive director of the Community Arts
Organization for more than 10 years. The Community Arts Organization is led
by a board of directors. Jared works independently. He receives all
membership fee payments (cash and checks), and he pays all bills and
reconciles the checking account. No one reviews Jared’s work and the
Community Arts Organization is not regularly audited.
Over the course of the past 5 years, Jared has committed fraud and
embezzled nearly $400,000. Jared deposits membership fee payments
directly into his own bank account. He also writes Community Arts
Organization checks to himself and has created phony companies that he
writes checks to and deposits the checks into his own bank account.
Part 2: Explaining Variances in Performance Reports and Suggesting
Possible Causes and Remedies
Read the “Widget Company Performance Report” document, provided with
this Assessment. Imagine that you are the manager of the production
department at the Widget Company and you have been asked to explain the
variances found in a performance report, propose possible causes, and make
suggestions for how the variances can be remedied. Using the information
provided in the Widget Company Performance Report, prepare a memo to
your boss that explains the possible causes of the variances in the
performance report, and suggest how the company can remedy them. (1 – 2
pages)
Part 3: Alternatives to Discounted Cash Flows, the Information They
Provide to Inform Capital Investment Decisions, and the Types of and
Usefulness of Qualitative Information on the Decision-Making Process
Scenario
As a new product development manager, you are considering investment
proposals for two mutually exclusive investment opportunities. The projects
have been analyzed using net present value (NPV), internal rate of return
(IRR), payback, and accounting rate of return (ARR), and the results are
presented in the Investment Proposals document.
Assume the company requires a minimum return of 16% and a payback of 3
years. Evaluate the projects using the analysis provided and write a brief
report that makes a recommendation based on the data. Also include
qualitative factors that should be considered and an explanation of how they
would impact the recommended investment decision. (1 page)
Part 4: Using Transfer Pricing Methods
Scenario
Graphic Art, Inc. has a print division that produces art prints in China and a
Retail Division in Greece that sells the prints. The Print Division has a low
20% income tax rate and the Retail Division has a high 50% income tax rate.
The Retail Division in Greece is subject to a 10% import duty on the transfer
price of all imported products. Both China and Greece allow firms to use either
variable or full cost as the transfer price. The Graphic Art document
summarizes both transfer pricing methods.
Assuming both divisions have significant positive taxable income, write a
business email that describes the transfer pricing method that you think
Graphic Art, Inc. should use. Be sure to cite the data from the spreadsheet. (2
– 3 paragraphs)
Part 5: The Flexible Budget
Scenario
As the newly promoted general manager of the Widget Company, you
prepared a performance report using Excel and presented this to your boss.
(See “Widget Company Performance Report.”) Your boss e-mailed you and
asked for more information regarding the usefulness of a flexible budget
report to assess performance. Prepare an e-mail to your boss explaining why
the flexible budget provides more useful information than a static budget. (3 4 paragraphs)
Part 6: Break-Even Analysis and Decision Making
Scenario
Jaden Water Inspection Service tests water quality for industrial applications.
Jaden receives $150 for each inspection and wants to expand its business by
adding another employee and vehicle. Jaden anticipates that another
employee would add 60 additional inspections per month. Jaden has
determined that the average cost for each inspection is $45. The fixed costs
for a new employee and vehicle are $3,000 per month.
To persuade his investors that adding another employee is a good idea,
Jaden prepared a break-even analysis. (See the “JWIS Break-Even Analysis”
document.) Assume the role of Jaden and prepare a report that includes the
following (1 to 2 pages):
•
•
An explanation of the purpose of a break-even analysis as it relates to
this case
Based on the break-even analysis, an explanation of why the additional
employee is a good investment
Overview
This Performance Task Assessment includes six parts. Each part involves a
different case scenario that will challenge you to apply your knowledge about
how to communicate accounting information in different business
situations. You are strongly encouraged to use the Academic Writing
Checklist when completing this Assessment.
Your response to this Assessment should:
•
•
•
Reflect the criteria provided in the Rubric.
Adhere to the required length.
Conform to APA style guidelines. You may use Walden Writing Center’s
APA Course Paper Template here.
Professional Skills: Written Communication, Technology, and Critical
Thinking and Problem Solving are assessed in this Competency.
This Assessment requires submission of two (2) files. Save your files as
follows:
•
•
Save Part 1 as IG011_Part1_firstinitial_lastname (for example,
IG011_Part1_J_Smith).
Save Parts 2-6 as IG011_Parts2-6_firstinitial_lastname.
For each scenario, you will assume an important role within a fictional
company and analyze various aspects of that company using accounting tools
and measures.
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