Question

The following data were summarized from the accounting records for Caterpilar Inc (only for Construction Industries segment and Resource Industry segment) for the year ended December 31, 2018:Cost of goods sold:Construction Industries$912,250 Resource Industry423,675Administrative expenses:Construction Industries$149,800 Resource Industry128,625Service department charges: Construction Industries$112,560 Resource Industry67,830Sales: Construction Industries$1,354,500 Resource Industry743,780Prepare divisional income statements for Caterpilar Inc

What is the purpose of the Balanced Scorecard? How might Caterpilar Inc utilize it? (Include an explanation for all four performance metrics)Explain transfer pricing. What are the advantages to the company of utilizing the negotiated price approach

Answer 1

• Divisional income statement for the year ending 31/12/18

(in $)

Particulars	construction industry	resource industry
i)sales	1,354,500	743,780
ii)cost of goods sold	912,250	423,675
iii) Gross profit (i-ii)	442,250	320,105
Less:
iv)administrative expenses	149,800	128,625
v)service department expenses	112,560	67,830
vi) indirect expenses total(iv+v)	262,360	196,455
vii) Net profit (iii-vi)	179,890	123,650

• A balanced scorecard is a performance metric used in strategic management to identify and improve various internal functions of a business and their resulting external outcomes. It is used to measure and provide feedback to organizations.and also helps in bringing business in line with external changes,like Financial perspectives,customer perspectives,business process perspectives,learing & growth perspectives

Caterpiler Inc can use it for determining.

1)define major objectives

2)measures to reach objectives

3)setting targets

4)providing initiatives

these can be organized by following form

	objectives	measures	targets	initiatives
Financial
Customer
Process
Learing

• Transfer pricing means a study of techniques about the price at which the products/services can be transfered to/by divisions within the company, in the best manner that there internal profits is impacted to the minimal extent.

Advantages of price negotiations approach:

1) less inputs cost

2)mutual benefits

3)price based on capacity of customer

4)effective way of management