TMA حل واجبات الجامعة العربية المفتوحة

B321 TMA

B321: TMA – 1^st Semester 2013-2014

The TMA Questions

PART A: Capital Budgeting – Zenobia Case Study

Zenobia is a developing country situated on the coast of Africa. Its government, now democratically elected, has produced a programme of economic reforms aimed at promoting investment in the country and reducing its dependence on foreign aid. A major feature of this programme is the privatisation of companies and corporations which are currently 100% owned by the government, e.g. hotels, breweries and coffee production. For the time being, the government is not considering privatising services such as post, railways or the provision of basic telecommunications (this is mainly the fixed-line, voice telephony service). It does, however, wish to attract private capital to provide new services such as cellular (mobile) telephones and data communication.

Required:

1. State the approaches that Zenobiamight be used to recognize risk in capital budgeting (Hint: some research is required here). (180 words)
2. State for the Company what would be the effect of using a depreciation method other than straight-line when considering the role of income taxes on the net present value method. (100 words)
3. Explain why it is useful for Zenobia if their accountants have to concern themselves with qualitative factors when making decisions. (180 words)
4. Explain how Zenobia’s accounting systems help to control the underlying operations of a company and in particular explain how they may help with decisions involving constraining factors or resources. (160 words)

PART B: Transfer pricing

Transfer pricing happens whenever two related companies – that is, a parent company and a subsidiary, or two subsidiaries controlled by a common parent – trade with each other, as when a Japanese-based subsidiary of “Japanese Corporation P”, for example, buys something from a French-based subsidiary of the same company. When the parties establish a price for the transaction, they are engaging in transfer pricing.

Transfer pricing is not, in itself, illegal or necessarily abusive. What is illegal or abusive is transfer mispricing, also known as transfer pricing manipulation or abusive transfer pricing.

 

Required:

• Discuss why is it necessary to establish transfer prices between subunits before evaluating the performance of subunit managers. (80 words)
• Explain how does the condition of “arm’s-length transaction” correspond to a perfectly competitive market. (110 words)
• Explain why it may be a problem when a subunit of a company cannot match its transfer price to a market price. (100 words)
• Transfer prices are not calculated as part of the cost of a product for product-costing purposes; therefore discuss why Japanese Corporation P develops guidelines for determining a minimum transfer price. (80 words)
• 5- If an organization is decentralized in the design and production functions but centralized for the finance and tax functions, discuss why should the production subunits have to consider taxes in the setting of transfer prices. (100 words)
• Discuss why processes need to use intermediate measures to evaluate performance toward a goal. (190 words)
• The Assembly Division of “JapaneseCorporation P” has offered to purchase 80,000 batteries from the Electrical Division for $100 per unit. At a normal volume of 260,000 batteries per year, production costs per battery are as follows:

 

Direct materials	$ 50
Direct manufacturing labor	10
Variable factory overhead	18
Fixed factory overhead	50
Total	$128

 

The Electrical Division has been selling 260,000 batteries per year to outside buyers at $146 each; capacity is 380,000 batteries per year. The Assembly Division has been buying batteries from outside sources for $138 each.

 

1. Should the Electrical Division manager accept the offer? Explain.
2. From the company’s perspective, will the internal sales be of any benefit? Explain. (110 words)

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