Management Accounting - Multinational Transfer Pricing and Airline Pricing
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Added on  2023/06/12
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This article discusses multinational transfer pricing, global tax minimisation, goal congruence, and airline pricing. It also provides solutions to the questions asked in the scenarios. The article is relevant for students studying management accounting and related courses. The course code, course name, and university/college are not mentioned.
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Running head: MANAGEMENT ACCOUNTING Management Accounting Name of the Student: Name of the University: Author’s Note: Course ID:
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1MANAGEMENT ACCOUNTING Table of Contents Scenario 1a: Multinational transfer pricing, global tax minimisation.............................................2 Question 1:...................................................................................................................................2 Question 2:...................................................................................................................................2 Scenario 1b: Multinational transfer pricing, goal congruence.........................................................4 Question 1:...................................................................................................................................4 Question 2:...................................................................................................................................4 Question 3:...................................................................................................................................5 Scenario 2: Airline pricing...............................................................................................................5 References:......................................................................................................................................8
2MANAGEMENT ACCOUNTING Scenario 1a: Multinational transfer pricing, global tax minimisation Question 1: Question 2: There are certain ways to proceed; however, it is needed to take into consideration the transfer price. As a result, the total import duties of Derwent Limited would be minimised. This could be either one of the two ways, the total manufacturing cost or the market value of the comparable exports. Therefore, a situation is taken into account by increasing the transfer price
3MANAGEMENT ACCOUNTING by $1 every time where the total manufacturing cost is $800 each unit. Due to this, there would be various changes, which are depicted as follows: In order to check the accuracy of the solution, another consideration is made where the transfer price is changed to $950 from $800. Certain changes per unit are expected to occur, which are represented as follows; It is clearly evident from the above table that the total profit has declined by $60,000, which is the difference obtained after computing the net income in the first solution. Hence, it is necessary for Derwent Limited to minimise import duties as well as income taxes in the form of settling the transfer price at $800, which is the total manufacturing expense.
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4MANAGEMENT ACCOUNTING Scenario 1b: Multinational transfer pricing, goal congruence Question 1: Question 2: If the product is transferred at the total manufacturing cost, the import duties of the Australian department are reduced. In that case, the Australian division would not be able to make any operating income. However, the intention of the department is to increase its profit through the product sale of B12 in Australia. This is because the profit margin would be increased to $650,000 by selling locally, which would not be possible, if it sold to the US division at total manufacturing cost (Bromwich and Scapens 2016). Therefore, the transfer price calculated in the first section might not help Derwent Limited in maintaining the optimum price.
5MANAGEMENT ACCOUNTING Question 3: Based on the above tables, the minimum transfer price that is acceptable to the Australian divisional manager of Derwent Limited might lead to excess payment of $40,000 as taxes and import duties. Scenario 2: Airline pricing To, The Directors of Eastcoast Airways, Date: 22/05/2018 Subject: Airline pricing strategy
6MANAGEMENT ACCOUNTING For ascertaining the feasible pricing policy in the context of Eastcoast Airways, several calculations are carried out depending on the data provided: Based on the above table, it could be assessed that the contribution margin of Eastcoast Airways could be increased by charging $600 from an individual pleasure traveller and $1,350 from a business traveller. Thus, it clearly lays out the fact that airline could be benefitted by adopting the price differentiation strategy so as to increase its profit margin (Dekker 2016). However, for selecting between the provided prices, the other costs are not taken into account, as they are not relevant in this case. These costs are fuel costs, annual lease costs, ground service costs and flight crew salaries. The prices of these items would not vary no matter whatever pricing strategy is adopted (Hopper and Bui 2016). The business travellers travel with a motive of returning in the same week, while the pleasure travellers have the intention of staying in the weekends. Therefore, Eastcoast Airways should charge $600 fare to those travellers only preferring to stay on the weekends. This would
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7MANAGEMENT ACCOUNTING serve as price discrimination between the two passenger categories (Quattrone 2016). Moreover, no objections could be raised regarding its legality, since Eastcoast Airways is a service organisation and such policies are adopted not to eliminate rivalry from the industry.
8MANAGEMENT ACCOUNTING References: Bromwich,M.andScapens,R.W.,2016.Managementaccountingresearch:25years on.Management Accounting Research,31, pp.1-9. Dekker, H.C., 2016. On the boundaries between intrafirm and interfirm management accounting research.Management Accounting Research,31, pp.86-99. Hopper, T. and Bui, B., 2016. Has management accounting research been critical?.Management Accounting Research,31, pp.10-30. Quattrone,P.,2016.Managementaccountinggoesdigital:Willthemovemakeit wiser?.Management Accounting Research,31, pp.118-122.