Preferential Homes (PH) is a residential home builder that does things a little differently than the competition. PH builds homes to completion in a factory rather than outdoors and on site. PH has three divisions, prefabrication, transportation, and construction. The Prefabrication division builds whole sections of floors, walls and roof trusses that are shipped to the Construction division, who uses these sections to build the shell of the house before adding all other interior and exterior components (e.g. insulation, wiring, outer walls, doors, etc.). The Prefabrication division “sells” its sections to the Transportation division who ships and “sells” the sections to Construction. Construction then sells finished products to the public.
At present, PH is the only home builder that makes pre-engineered homes and as such has been using its own internal transfer prices, which were set by head office. See appendix 1 for the past two year’s summary segmented income statements.
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