Management Accounting

Coffee Makers Incorporated Transfer Prices Case Study

The Current Position

Department B

Proposed Changes

Department B

Coffee Makers Incorporated has two divisions which purchase parts internally form a third department. Two parts; 101 and 201 are produced internally. The current transfer price for those parts is $1,000 and $2,000 respectively. The departments which are buying the parts; dept. A is buying part 101 and dep. B is buying part 201, want to change the purchase pattern, as external suppliers can supply the parts at a price less than the transfer price (dept. C) is charging.

Currently Dept A buys 3000 of the 101 parts from department C. topped up with 1,000 parts from external suppliers, department B. purchases 1,000 parts from dept. C and 1,000 parts from external suppliers. Both departments want to make a change to reduce their own costs, moving more purchases to the external supplier....
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