From the course: Accounting Foundations: Cost-Based Pricing Strategies

Unlock the full course today

Join today to access over 22,600 courses taught by industry experts or purchase this course individually.

What do the decision-makers prefer?

What do the decision-makers prefer?

From the course: Accounting Foundations: Cost-Based Pricing Strategies

Start my 1-month free trial

What do the decision-makers prefer?

- If Harold Consulting gives the graphics and printing job to outside, the out of pocket cost to Sophie Systems is $800,000. If Harold gives the graphics and printing job to Madeline Print Products, a sister division within Sophie Systems, the out of pocket cost is $640,000. Compute it like this. Labor, $225,000 paid by Madeline to its employees, direct overhead, $165,000 paid by Madeline to various sources for machine rental, maintenance wages and so forth, materials, $250,000 paid by Brandon to an outside vendor. But let's look at this issue from the perspective of the manager of the buying division, Harold Consulting. Recall that within Sophie Systems, all division managers are evaluated based on the amount of segment margin generated by her or his division. Segment margin is defined as revenue minus variable cost minus direct fixed cost. If the manager of Harold Consulting accepts the higher inside bid from Madeline Print…

Contents