Hi! Advanced Tutor! I am posting my query on the transfer pricing. I hope I will get the answer in time like the previous ones.

Requirement 1 Attached (Exhibit A) is a file that contains a copy of the hydroponics plant's actual financials for 20X5 in comparison to our 20X5 projections. Desert Valley's board is about to hold a meeting to discuss the plant's actual performance against the projected numbers. In order to prepare for that meeting, please do an analysis of the financials and comment on the findings. Be sure to include in your discussion the relevance of the transfer price currently being used and its impact to the bottom line for the hydroponics department. You are also to calculate the \"full cost\" transfer price that would exactly cover all of the net before-tax costs to produce the malting barley transferred to the brewing operations. To calculate this price, consider all costs incurred, less amounts recovered from external sales. These costs should include interest but exclude income taxes. Lastly, provide recommendations for any actions the hydroponics department should make to control costs and improve margins. Not including Excel, your memo should not exceed two pages. Requirement 2 We have been asked to discuss performance measure issues as it relates to Desert Valley's transfer pricing policy. Explain to the shareholders the implications of the current transfer price policy as it relates to the hydroponics and brewery managers' performance. Provide the shareholders information on alternative transfer prices (per kilogram). Your discussion should include: The financial implications for the hydroponics department, including a calculation of the contribution, operating and net margins. How the different transfer prices would impact the behaviours of the hydroponics and the brewery managers. Transfer price methods to analyze include: market-based (current market selling price) variable-cost based ( equal to the variable cost to produce) full cost (as calculated previously in activity 7a) negotiated cost (the negotiated cost will be equal to the variable cost plus 50% of the difference between the current market selling price and the variable cost). Recommend a transfer price to be used and support your recommendation. Lastly, peruse the attached key performance indicators (EXHIBIT B). Recommend at least two performance measures that would be more suitable for each manager and in line with the overall corporate goals. Be sure to explain why you chose those measures. Not including Excel, your memo should not be longer than four pages. EXHIBIT A Financial Results Hydroponics 20X5 Projected Revenue Sales to brewery Sales to external customers Sales for livestock feed Total revenue a 4,184,517 891,983 47,925 5,124,425 Variable costs b (3,681,350) $ CM $ Hydroponics 20X5 Actual $ 1,443,075 3,223,000 578,000 52,650 3,853,650 * f (3,541,350) g 312,300 FOH Operating margin $ c (558,620) 884,455 (586,551) (274,251) h Other expenses EBIT Interest expense Income tax (expense)/recovery Net earnings after tax $ d (240,000) 644,455 (153,000) (147,437) 344,018 (240,000) (514,251) (153,000) 200,175 (467,076) i e $ $ Notes From week 5 Total malting barley kg required (1,463,118 kgs x $2.86) + a 311,882 Kg excess sold on market place + 250 kgs livestock barley sale j b c d e f g h i j * From week 5 Variable cost of producing malting barley - $2.05 and livestock feed - $0.24 From week 5 Fixed costs Amortization plus other expenses Represents interest on loan for hydroponics investment (given) Actual malting barley used for production was 1,465,000 kgs @ $2.20/kg + external customer sales of 200,000 Kg @ $2.89 + livestock feed barley of 195,000 kg @ $0.27* Actual variable cost of producing malting barley (1,665,000 kg) and livestock feed (195,000 kg) @ $2.10/kg and $0.23/kg Actual fixed overhead (one more staff hired on besides production supervisor) Actual amortization plus other expenses Represents interest on loan for hydroponics investment 9% on (1,150,000 + 550,000) Other information: Market price of malting barley is $2.89. Maximum livestock feed production is 177,500 kg. However, 17,500 kg of low-grade-quality malting barley was converted to livestock feed. Exhibit B Desert Valley Brewery Ltd. Key Performance Indicators 1. Asset utilization to optimize fixed assets The asset utilization ratio calculates the total revenue earned for every dollar of assets invested to generate that revenue. 2. Effective quality control - measured in one of three ways: a) becoming ISO approved; b) measuring the percentage of malting barley that is grown in the hydroponics plant and used in the production of Desert Valley's beer; or c) using the percentage of spoilage as a measure of quality processes and products. 3. Energy savings - For example, improve water efficiency by 10% by 20X7; send zero waste to landfill by 20X7; improve energy efficiency by 25% by 20X7; no violations of an environmental nature. 4. Market share growth Growing market share is a strong indicator of Desert Valley's execution capabilities. 5. Operating profit Operating profit is a measure of a company's ability to enhance operational performance through top-line growth and continued focus on cost effectiveness. 6. Cash flow A strong cash flow provides a company with the flexibility to return cash to its shareholders and pay down debt, or reinvest in its business and engage in valuecreating growth activities. 7. EPS Earnings per share is a key measure of the underlying earnings of the organization, available to the shareholders. 8. ROI - Maximizing return on all investments is the key to delivering sustainable value to a company's shareholders. 9. Full net cost per unit produced - This measure compares the full cost (net of any external sales) per kilogram of malting barley transferred to the current market price of malting barley. This indicator will encompass quality which will impact how many kilograms are transferred to the brewery and encourage cost efficiencies