BACKGROUND OF THE CASE
Compagnie du Froid, S.A (referred here as Compagnie in short) was a company in the ice cream business with business in France, Italy and Spain. The company operated based on a decentralised decision making structure with each region having its own manufacturing, distribution and sales organisation. The central office was responsible for the finance and accounting of the business, development of new products and sharing of experiences and learning. The CEO, Jacques Trumen, maintained control of the regions through a profit planning and control system. Each regional manager would submit their profit plan in Nov/Dec prior to the fiscal year. Using the plan, Jacques would discuss and supervise the expansion strategy for each of the region, ensuring that there would be sufficient cash flow to support the plan. Subsequently, a top management meeting would be held to discuss the new growth opportunities. The profit plan would be used to monitor the performance of the region. The regional manager would then submit a profit statement fortnightly during the summer months for monitoring.
Traditionally, Jacques had been giving the 3 regional managers the same bonus, with each getting 2% of corporate profits. However, in 1996, the poor performance of the Spanish region caused the company's profit to drop to its lowest in 10 years. This induced him to rethink the way he has been evaluating the performance of the regional managers.
HOW WOULD YOU ACCOUNT FOR THE ICE CREAM TRANSFER FROM FRANCE TO SPAIN?
Transfer Price for Products to Spain
There are two main approaches to determine the transfer price for the product, namely, market pric ...