Sale!

# Solved HBR Case Study Solution: Siemens Electric Motor Works (B): Pricing Interdivisional Sales By Karen Hopper (Download Now)

75.00\$ 37.00\$

## Description

Solution Pages: 4

Word (.docx)

### Questions Covered in the Solution

Do you agree with Siemens decision to set up both Sales and EMW as profit centers? What are some of the costs and benefits associated with this decision?

Outline the transfer pricing rules. What is the relation between the cost of a product as generated by the product costing system, the factory cost, and its transfer price?

If Herr Lottes asked for your analysis of his situation and a recommended course of action, how would you respond?

### Sample of Solution

Do you agree with Siemens decision to set up both Sales and EMW as profit centers? What are some of the costs and benefits associated with this decision?

In essence, according to the old system of Siemens, costs were essentially allocated to support related cost centers. However, now Siemens has decided to set up Sales and EMW as profit centers. Based on this approach, the firm will now be able to determine the cost of each order efficiently. Eventually, the managers can use PROCASTA approach to decide which orders to accept and which to reject. Essentially, with the distinct pricing mechanism, the managers would be able to decide the transfer prices.

…..

Outline the transfer pricing rules. What is the relation between the cost of a product as generated by the product costing system, the factory cost, and its transfer price?

There are many ways to compute the cost of a product, and it is possible that every method gives a different answer. However, all the methods legitimately give the correct the answer while considering their specific dimensions consideration. For example, marginal costing and absorption costing both are used by the companies when computing the cost of production.

As economic decision making depends on these amounts which are calculated by the accountants, it is important that the decision maker has the knowledge of the assumptions under which those costs are calculated.

…….

If Herr Lottes asked for your analysis of his situation and a recommended course of action, how would you respond?

The problem is that EMW is not making profits even though it is operating at 115% of its operating capacity. Although EMW’s contribution is around 36%, it is still not able to make profits. There can be different reasons for this loss, and Siemens has to look for the potential causes of downturns to get an integrated strategic solution which may realize the desired profits. Moreover, around 87% of the orders transferred from EMW have a price which is less than the factory cost. Lottes can solve this issue by deciding a transfer price which is sufficient for EMW to avoid losses.

……

## Reviews

There are no reviews yet.