Responsibility Accounting and Transfer Pricing Math Problem

Responsibility Accounting and Transfer Pricing - Math Problem casingRequired a. Calculate depreciation expense and restrain value of the metal press under some(prenominal) historical cost and hurt-level-adjusted historical cost. For the historical cost, the metal fabrication press would depreciate $43,500 per year ($522,000/12). In terms of the book value of the metal fabrication press under historical cost, the net book value would be $217,500 ($522,000-($43,500*7)). In comparison, the price-level-adjusted historical cost would give a new cost of $621,180 (Increase of 19% on the original cost. If this is so, the new book value would amount to $316,680 ($621,180-$304,500). Because this value would depreciate over the stay five years of its life, the depreciation expense would be$63,336 ($316,680/5). b. In general, what is the effect on ROA of changing rating bases from historical cost to current values? Because assets are generally higher, the reward on assets would be sink b ecause a fraction always becomes less when the denominator is increased. This would result in the managers having more motivation to change the equipment because the return on the equipment would not be as great. c. The manager of the investment center with the metal press is considering renew it because it is becoming obsolete. Will the managers incentives to replace the metal press change if the firm shifts from historical cost valuation to the proposed price-level-adjusted historical cost valuation? It would not be advisable to do this because the company would need to commute the value of its asset each year. This change would result in giving the actual return at that point of time. However, it would mean that an extra cost would be incurred to fulfil with the accounting standards of the government. This would be too involved to carry out so it is best to not replace the metal press. Problem 5-15 U.S Pump Systems US Pumps is a multi variabilityal firm that manufactures and installs chemical piping and pump systems. Its valve segment makes a single standardized valve. The valve variability and installation division currently are involved in a transfer-pricing dispute. Last year, half of the valve divisions sidetrack was sold to the installation division for $40 and the remaining half was sold to outsiders for $60. The existing transfer price of $40 per pump has been set through a negotiation process between the two divisions and with the enfolding of senior management. The installation division has received a bid from an outside value manufacturer to bestow it with an equivalent valve for $35 each. The manager of the valve division manager has argued that if it is forced to meet the external price of $35 it will lose money on internal sales. The operating data for the last year for the valve division follow Valve Division Operating Statement-Last year To Installation Division To Outside Sales 20,000 $40 $800,000 20,000 $60 $1,200,000 Variable co st 20,000 $30 (600,000) (600,000) Allocated fixed cost (135,000) (135,000) Gross margin $ 65,000 $465,000 Analyze the situation and urge a course of action. What should the installation division managers do? What should the valve division managers do? What should the US Pumps senior manager do? From this situation, we can see that the installation division managers are able to achieve the necessary valve division output at a lower price. Also, the valve divisio