Question

Shelly works in the electronics unit of Ash Computers. She receives a request from Mandy, who works in the monitor display unit of Ash Computers, for a pallet of electronic switches. Based on what you know about market controls, what should Shelly do when giving the pallet of switches to Mandy?

A. Shelly should give them to Mandy for free, but record the transaction as if she had charged full market price.
B. Shelly should sell them to Mandy at double the market price to increase the company's profit on paper.
C. Shelly should price them the same as what Mandy would have to pay for them in the marketplace.
D. Shelly should give them to Mandy for half price since they are colleagues.
E. Shelly should give them to Mandy free since they work for the same company.

Answer 1

No option is correct because GAAP doesn't allow profits to be recorded during intercompany sales or other transactions. This is the same for parents companies and subsidiaries, or different divisions within the same corporation. Any intercompany transaction must be recorded at cost of goods sold, you can only record a profit or loss after the goods are sold to an external client.

In this case, both Shelly and Ash work for the same company, and the transfer of electronic switches must be recorded at COGS, if they are recorded at market value, then a non-existing profit would be recorded. This transaction cannot even be recorded as a sale, just a transfer of goods between units.

Answer 2

shelly should price them the same as what Mandy would have to pay for them in the marketplace

Step-by-step explanation:

Market control is defined as the management of supply and distribution of goods and services by an organisation. It aims at achieving political and economic goals by the use of various factors such as demand, supply, pricing, transportation and taxes.

In the firm if Shelly wants the transaction involving the pallet of electronic switches to be representative of market conditions, she will should price them the same as what Mandy would have to pay for them in the marketplace.

The transaction value will not be overstated or understated in the companie's books, but Shelly's unit should record the transaction at market price.