Management Accounting: Internal Supplies by Kamp Motors (Vécu and Kamp)

Management Accounting: Internal Supplies by Kamp Motors (Vécu and Kamp)

“The French company Vécu produces cars and lorries, buses and agricultural machinery.”

Suggested assignment

Being a consultant, you have been asked to make a report for the board of the Vécu concern in which you are to answer the following questions.

• What transfer price should Kamp insist on, in your opinion, if it were to supply the type 2a engine to the MB division now and in the future? Please give arguments for your proposal. You should at least consider the principle ‘minimum transfer price = variable cost per unit + opportunity costs for the supplier’ and the guidelines Vécu has for transfer prices. Please draw attention to the interests of Kamp Motors as well as those of Vécu as a whole. Taking into consideration Vécu’s transfer price policy, what do you think of Guy Mercier’s attitude?
• Please discuss the possibilities of increasing Kamp’s profit by using the formula for basic cost per unit and by reorganizing. Please use a concrete example to indicate how the board of Kamp can manipulate the unit costs for the types 2, 3, and 4 by reorganizing its cost infor¬mation sys¬tem. How, do you think, can the boards of the Vécu concern and the MB division determine whether Kamp manipulates data on unit costs?
• Within the Vécu concern, Kamp is obliged to supply engines at cost per unit plus a mark-up for profit. Please compare Vécu’s transfer price system with Vécu’s system of responsibility centres and with Eccles’s theory on transfer pricing.
• Taking into consideration the product differentiation strategy adopted by Kamp and Vécu, what do you think of Kamp’s idea to collaborate more closely with technical universities and to sell the types 2, 3, and 4 externally as well?