Lamothe Solutions is a management consulting firm. Its Business Division advises firms on the adoption and use of financial systems. Civic Division consults with state and local governments. Civic Division has a client that is interested in implementing a new costing system in its public works department. The division's head approached the head of Business Division about using one of its associates. Corporate Division charges clients $780 per hour for associate services, the same rate other consulting companies charge. The Civic Division head complained that it could hire its own associate at an estimated variable cost of $380 per hour, which is what Business pays its associates. Suppose that Civic Division will charge the client interested in implementing a costing system by the hour based on cost plus a fixed fee, where the cost is primarily the consultant's hourly pay. Assume also that Civic Division cannot hire additional consultants. That is, if it is to do this job, it will need to use a consultant from Business Division. Required: a-1. What is the minimum transfer price that Business Division should obtain for its services, assuming that it is operating at capacity? a-2. Would this be an ethical price to charge the government client? b-1. What is the transfer price you would recommend if Corporate Division was not operating at capacity? b-2. Would this be an ethical price to charge the government client? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B1 Req B2 What is the minimum transfer price that Business Division should obtain for its services, assuming that it is operating at capacity? Minimum transfer price for Business Division < Req A1 per hour Req A2 >
Lamothe Solutions is a management consulting firm. Its Business Division advises firms on the adoption and use of financial systems. Civic Division consults with state and local governments. Civic Division has a client that is interested in implementing a new costing system in its public works department. The division's head approached the head of Business Division about using one of its associates. Corporate Division charges clients $780 per hour for associate services, the same rate other consulting companies charge. The Civic Division head complained that it could hire its own associate at an estimated variable cost of $380 per hour, which is what Business pays its associates. Suppose that Civic Division will charge the client interested in implementing a costing system by the hour based on cost plus a fixed fee, where the cost is primarily the consultant's hourly pay. Assume also that Civic Division cannot hire additional consultants. That is, if it is to do this job, it will need to use a consultant from Business Division. Required: a-1. What is the minimum transfer price that Business Division should obtain for its services, assuming that it is operating at capacity? a-2. Would this be an ethical price to charge the government client? b-1. What is the transfer price you would recommend if Corporate Division was not operating at capacity? b-2. Would this be an ethical price to charge the government client? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B1 Req B2 What is the minimum transfer price that Business Division should obtain for its services, assuming that it is operating at capacity? Minimum transfer price for Business Division < Req A1 per hour Req A2 >
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Lamothe Solutions is a management consulting firm. Its Business Division advises firms on the adoption and use of financial systems.
Civic Division consults with state and local governments. Civic Division has a client that is interested in implementing a new costing
system in its public works department. The division's head approached the head of Business Division about using one of its
associates. Corporate Division charges clients $780 per hour for associate services, the same rate other consulting companies charge.
The Civic Division head complained that it could hire its own associate at an estimated variable cost of $380 per hour, which is what
Business pays its associates.
Suppose that Civic Division will charge the client interested in implementing a costing system by the hour based on cost plus a fixed
fee, where the cost is primarily the consultant's hourly pay. Assume also that Civic Division cannot hire additional consultants. That is, if
it is to do this job, it will need to use a consultant from Business Division.
Required:
a-1. What is the minimum transfer price that Business Division should obtain for its services, assuming that it is operating at capacity?
a-2. Would this be an ethical price to charge the government client?
b-1. What is the transfer price you would recommend if Corporate Division was not operating at capacity?
b-2. Would this be an ethical price to charge the government client?
Complete this question by entering your answers in the tabs below.
Req A1
Req A2
Req B1
Req B2
What is the minimum transfer price that Business Division should obtain for its services, assuming that it is operating at
capacity?
Minimum transfer price for Business Division
< Req A1
per hour
Req A2 >
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