I received this case in my managerial accounting class. Could you please help me solve it? Thank you so much in advance!

I'MA The Association of Accountants and EDUCATIONAL Case Case Journal Study Dinner Financial Professionals in Business ISSN 1940 - 204X| Texas Products , Inc . Nicholas J . Fessler Soules College of Business\\ The University of Texas at Tyler INTRODUCTION The Amarillo Division's regular selling price for Falcon is $65. 00 ( to external customers ) . The sales force for Amarillo* Texas Products , Inc. is a decentralized company where each is actively pursuing new customers , and sales for Falcon are* division is operated as an investment center and has its own expected to increase . The Amarillo Division has the following production facilities and sales force ( see Appendix for more* costs associated with Falcon :` information about transfer pricing ) . Division managers are* Variable manufacturing cost $32.00 paid well , including annual bonuses , and top management uses return on investment ( ROD ) to evaluate and reward the Variable selling and distribution cost* 6.00 Fixed manufacturing cost 12.00 performance of its division managers ." Two such divisions are* the object of this case ." The Midland Division has just won TOTAL COST [ FALCONY\\ $50. 00 a contract for its recently developed product " Millennium . " One of the component parts used in the production of* Unfortunately , the managers of the two divisions have not yet been able to agree on a transfer price for Falcon . The results Millennium can be manufactured by the Amarillo Division of the negotiation will be important in determining which of the and has an internal code name of " Falcon ; " however , a division managers earns a bonus this year . Ella Vader , manager subcomponent functionally similar to Falcon can also be of the Amarillo Division , is irritated that information was manufactured by outside providers .\\ When bidding for the project , the manager of Midland obtained about the cost of the Falcon component part without Division , Luke Darth , asked Amarillo to provide the variable* her knowledge . But she is thankful that whoever asked for the information did not specifically request " variable manufacturing cost of the Falcon component and used the provided cost figure ( $38.00) when preparing the Millennium bid . The cost , " as the $38. 00 cost figure provided to the Midland Division includes $6.00 of variable selling and distribution costs , Midland Division anticipates a total cost of $ 2.62.50 for the which will not be incurred for any sales to Midland . Ella knows* product ( including the $38.010 cost of the Falcon component produced by the Amarillo Division ), and won the contract* that she will not earn a bonus this year if her Amarillo Division effectively " gives" Falcon to Midland Division , which is what with a bid of $362.50 , which will be the Midland Division's Amarillo would be doing if the transfer price is $38 . 00 . She revenue per unit sold . thinks that in order for her to earn an annual bonus this year , the Variable manufacturing cost $168.00 (including $38 transfer price transfer price for the component must be at least $58.20 , which Variable selling and distribution cost 31.50 provides a 45% contribution margin ratio . But she has doubts Fixed manufacturing cost TOTAL COST ( MILLENNIUM ) $ 262.50 I'MA EDUCATIONAL CASE JOURNAL\\ 63.00 that Luke Darth will be able to earn his annual bonus with a transfer price that high . \\ VOL . 11 , NO . 3 , ART . 2 , SEPTEMBER 2018) @ 2018 I MAMany methods can be used to establish a transfer price . The Millennium product line is important for the Generally , the highest price the buying division would be Midland Division and for Texas Products , because it is expected to be critical for the future profitability of not only willing to pay is the market price ( if known ); the lowest price the division but also the company . Millennium , however , is the selling division would be willing to accept is the relevant* less important for the Amarillo Division because sales of the ( variable ) cost of the product . Falcon component ( and several other products ) are steadily The market price method sets the transfer price as the growing . Corporate management has no transfer price policy outside market price of the selling division's product or service . because interdivisional transactions have not previously Possible cost- based transfer price methods :" occurred but has suggested the following possible transfer Variable cost : Transfer price equals the variable cost per unit price methodologies for the Falcon component :" Full cost : Transfer price equals a product's or service's variable costs plus fixed costs allocated to it\\ 2 . Regular selling price , b. Regular selling price less variable selling and distribution Variable cost + markup :" Transfer price equals variable cost plus a mark - up ( For example , variable cost plus 25% )| expenses , C. Manufacturing cost plus 15% , and Full cost + markup : Transfer price equals full cost plus a mark - up J. Variable manufacturing cost plus 20% . ( For example , 120% of full cost )\\ What can and/ or should be done by Ella , Luke , and the A negotiated transfer price results when top management corporate management of Texas Products with regard to allows the buying and selling division managers to negotiate a Millennium and Falcon ?" transfer price . Whether or not the selling division has idle capacity will REQUIREMENTS : influence the price the selling division is willing to accept for the good or service ; when the selling division must displace outside 1 . Compute each of the suggested transfer prices for ( a ) , ( b ) . business to provide goods or services to another division , the lost ( C ) , and ( d ) . profit is an opportunity cost for the selling division . 2 . Calculate the contribution margin ratios for both the Amarillo and Aidland Divisions using the two transfer MORE ON TRANSFER PRICING prices mentioned in the case : $38.00 used in the original Why are transfer prices necessary ? Because many companies bid , and $58.20 needed by Ella to earn her bonus . What are decentralized . In decentralized companies , decision - making conclusions do you draw from these calculations ?` authority and empowerment is spread throughout the company , 3 . Is the negotiation of a price between the Midland and not just to a few top managers . Hence , textbooks describe Amarillo Divisions an appropriate method to determine responsibility centers such as cost centers , profit centers , and a transfer price ? Is it likely that negotiation will be investment centers . In practice , large responsibility centers are successful ?" sometimes called divisions . 4 . Should the corporate management of Texas Produces become "There are many advantages and disadvantages of a involved in this transfer controversy should negotiations decentralized company . between the two division managers break down ? Explain . Advantages :` 1 . Lower- level managers usually have better information than top management for making operational decisions . APPENDIX : TRANSFER PRICING 2 . Local managers can make decisions more quickly . benefiting customers and others . cost ) and selling ( realizing revenue and expenses ) divisions are company as a whole . A transfer price is the price charged when one division of a of the company . The profits of both the buying ( incurring a Decentralized decision making gives lower- level good training for higher- level positions . business conditions . managers more experience making decisions , which is 5 . Smaller , decentralized units are more flexible to changing 4 . Similarly , cop management can concentrate on big I'MA EDUCATIONAL CASE JOURNAL VOL . 11 . NO . 3 , ART . 2 , SEPTEMBER 2018 company provides and sells goods or services to another division A HELPING HAND impacted by the purchase , but the transfer price nets out for the 3 . 1 decisions rather than worrying about day - to- day operations .Decentralized organizations are better able to expose ABOUT IMA" (INSTITUTE OF MANAGEMENT ACCOUNTANTS ) it's divisions to competition , which can improve division IMIA ", the association of accountants and financial professionals performance . in business , is one of the largest and most respected associations focused exclusively on advancing the management accounting 7 . Decentralized organizations can provide lower- level managers with greater motivation and job satisfaction profession . Globally , IMA supports the profession through because of their higher levels of responsibility . research , the CMA' ( Certified Management Accountant ) program , continuing education , networking and advocacy of the Disadvantages !" highest ethical business practices . IMA has a global network of 1 . Lower-level managers can make decisions without* more than $5 , 000 members in 140 countries and 300 professional understanding the true big picture . and student chapters . Headquartered in Montvale , N. J., LISA , 2. Lower-level managers are less experienced decision IMA provides localized services through its four global regions :" makers and can make poor decisions .\\ The Americas , Asia / Pacific , Europe , and Middle East / India . 3 . There can be a lack of coordination among lower - level For more information about IMA , please visit www. imanet . org. managers . 4 . More sophisticated ( and expensive ) accounting control systems are required in decentralized organizations . 5 . More training of lower-level managers must Occur . 6 . The personal objectives of lower-level managers may different than those of the organization ( at least as represented by top management ) . For instance , a lower - level manager may be concerned about earning a year - end bonus and use methods that are not in the best interest of the company as a whole to earn that bonus . 7 . Innovation can be more difficult to introduce and implement in a decentralized company . Centralization exists when top management controls the major functions of an organization . Centralization also has advantages and disadvantages . Advantages :" 1 . There are greater economies of scale when company resources are coordinated centrally . 2. There is improved control over organizational resources . 3 . More complex organization - wide activities can be performed . Disadvantages! 1 . As a company grows larger , there is an upper limit to how can be centrally unmanageable . 2 . Similarly , as company activities grow more complex , they much can be controlled by top management . 3 . Diminishing returns of centralization can occur