acc563: advanced accounting theory

Prepare a consultant’s report to the MD of Wellington Trailers Ltd, Jeff Lynne. Your report should cover the following:

(a)Explain how a firm should arrive at the theoretically optimum transfer price (for maximisation of group profits) and apply this theory to the situation described at WT to calculate revised transfer prices for chassis and bodies supplied to Assembly. Give full reasons for your choice of transfer price.(b)Using the transfer prices determined in (a) above, produce a revised Assembly division costing for the Titan trailer, a revised marginal costing operating statement and state the price-volume combinationthat now maximises profits for Assembly division. Compare this price-volume combination to the one based on the old transfer prices.

(c)Explain the key characteristics of a good transfer pricing system and use these to outline the advantages and disadvantages of the theoretically optimum transfer prices suggested in (a).

(d)Stateand briefly explainthe range of possible transfer prices within which Bob Dylan (Chassis) and Roy Orbison (Assembly) might seek agreement, if they were free to negotiate a transfer price for chassis. Establish whether they would be likely to reach agreement, and if so at about what price? (e)Taking into account the current managem