Until recently, the computer services of Kompease Company have been a free good because management wanted to

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Until recently, the computer services of Kompease Company have been a free good because management wanted to encourage various departments to automate as much of their data processing as possible. Now the proposal has been made to use market price less 5 percent to charge for computer services. The market price is readily obtainable, and managers believe that it is a fair transfer price. Reducing the charges by 5 percent would discourage users of computer services from going to external vendors. An operating department manager has just learned that her data processing requirements will cost about $10,000 per month. She informs the manager of the computer center that she can satisfy her data requirements by using clerical labor to produce the data manually at a cost of $7,600. A manager of a profit center says he will stop using the computer and do without the data generated in the past, because the cost of the data exceed the value to his department. "My profits may decrease somewhat without those data," he says, "but they would decrease much more if I am charged for using the computer." Discuss the problems created by changing to a transfer price and the way they may be resolved.

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Cost Accounting

ISBN: 9780538817646

2nd Edition

Authors: Les Heitger, Pekin Ogan, Serge Matulich

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