Question 1: The following are the causes of market failure (externality, public goods, market

control, and imperfect information in the market). Your task is to the briefly identify each and
describe its significance effect to the costing and pricing strategy of a certain enterprise or
company.
CAUSES
MARKET IDENTIFY EACH
FAILURE
That's like when our Kropek
factory lets off that strong
EXTERNALITY smell, right? It bothers people
around us. So, our actions
affect others negatively.
Kropek is for everyone, like a
snack at a party! You can't
really control who eats it, and
PUBLIC GOODS
one person eating doesn't mean
less for someone else.
That's when everyone loves
our Kropek so much that no
MARKET one else can make it like we
CONTROL do. We can set our prices high
because we're the only ones
selling our special Kropek.
Some folks might not know
how awesome our Kropek is or
that there are cheaper options
IMPERFECT
out there. They might not
INFORMATION
know if they're getting a good
deal.
IMPACT ON COSTING &
PRICING
Since our factory's smell bothers
people, it costs us more than just
making Kropek. To cover those
extra costs, we might have to bump
up our Kropek prices a bit.
Since Kropek is for everyone, we
can't charge each person who takes
a bite. We might need help from the
government or find other ways to
make money, like sponsoring events
or selling in bulk.
Being the only ones with our special
Kropek means we can charge more
for it. We might not worry too much
about cutting costs because people
will buy from us no matter what.
If people don't know much about
Kropek or don't know there are
cheaper brands, we can trick them
into paying more. So, we might
focus on advertising to show off
how great our Kropek is compared
to the rest.

Question 2: What are the effects of transfer pricing in achieving the goals and purposes of
the company’s costing and pricing strategy?
Transfer pricing is super important for our company's costing and pricing strategy. It helps us
make sure that different parts of the company work together well and that costs are divided
fairly. By setting prices for goods and services exchanged between divisions, we make sure
everyone is pulling their weight and contributing to our goals. Plus, it helps us manage taxes
better and figure out how well each part of the company is doing. But we've got to be careful
to follow the rules and keep things transparent so we stay competitive in the market.

Question 3: What is the benefit of having a master budget in business operation. Expound.
Having a master budget in our business operations is incredibly beneficial for several reasons.
Firstly, it helps us plan and coordinate everything we do financially. From sales targets to
expenses and financing, it gives us a clear picture of where we're headed. Plus, it's super
handy for allocating our resources wisely. We can decide where to put our money, whether it's
in production, marketing, or something else, based on our goals and what we can afford. And
when it comes to keeping track of how we're doing, the master budget is like our best friend.
It lets us compare our actual performance to what we planned, so we can spot any issues and
fix them fast. It's also great for looking ahead and managing risks. By forecasting our future
cash flows and expenses, we can prepare for any bumps in the road and make sure we're
ready for whatever comes our way. Plus, it's a fantastic tool for communicating with our team
and holding everyone accountable. Everyone knows what we're aiming for and what they
need to do to help us get there. And last but not least, having a solid master budget makes us
look good to lenders and investors. It shows them that we're on top of our game financially
and that we're a safe bet for their money. Overall, having a master budget is like having a
roadmap to success for our business. It guides our decisions, keeps us on track, and helps us
reach our goals.

Question 4: Enumerate the steps in strategic budgeting.

1. Set Clear Goals – Define what we want to achieve.
2. Analyze Environment – Understand market trends and competition.
3. Assess Internally – Identify strengths, weaknesses, opportunities, and threats.
4. Develop Strategies – Create plans aligned with goals and resources.
5. Formulate Budget – Estimate revenues, expenses, and capital needs.
6. Allocate Resources – Distribute resources according to strategic priorities.
7. Monitor and Adjust – Keep track of performance and make changes as needed.
8. Evaluate and Learn – Review outcomes to improve future budgeting.

Question 5: Site five (5) importance of management controls system to the (a) company’s
gathering and usage of information, (b) managers behavior, and (c) employee’s behavior.

MANAGEMENT
IMPORTANCE
CONTROL SYSTEM
COMPANY’S GATHERING 1. Data Accuracy – Ensures accurate and consistent data
& USAGE OF collection.
INFORMATION 2. Integration – Integrates data from various sources for
a comprehensive view.
3. Real-time Reporting – Provides up-to-date
information for quick decision-making.
4. Trend Identification – Helps identify patterns and
trends for informed decision-making.
5. Strategic Planning – Facilitates strategic planning by
providing relevant market insights and data.
MANAGERS BEHAVIOR 1. Accountability – Management control systems hold
managers accountable for their actions and decisions,
fostering a sense of responsibility.
2. Performance Improvement – By providing clear
performance metrics, these systems help managers
identify areas for improvement and strive for
excellence.
3. Decision-Making Support – Management control
systems offer data and analysis that aid managers in

EMPLOYEE’S BEHAVIOR
making informed decisions, reducing uncertainty.
4. Goal Alignment – These systems ensure that
managers' actions are aligned with organizational
goals, enhancing focus and coherence in their
behavior.
5. Feedback Loop – Management control systems
provide regular feedback on managerial performance,
enabling continuous learning and adjustment.
1. Clear Expectations – Sets clear performance goals for
employees.
2. Regular Feedback – Provides timely feedback on
performance.
3. Motivation – Offers incentives to boost employee
morale.
4. Accountability – Encourages employees to take
responsibility for their work.
5. Alignment – Ensures employee goals align with
company objectives.

Question 6: What is the significance of efficient management of economies of scale to

costing and pricing strategy of firms in an industry?
The efficient management of economies of scale is crucial for our costing and pricing
strategy in the industry. By maximizing economies of scale, we're able to produce goods or
services at a lower average cost per unit as our production volume increases. This allows us
to offer competitive prices in the market while maintaining healthy profit margins. Lower
production costs not only give us a pricing advantage but also create opportunities for market
expansion and increased profitability. Additionally, the cost savings generated from
economies of scale can be reinvested in innovation, enabling us to introduce new products
and stay ahead of the competition. Overall, efficient management of economies of scale is
key to our success in managing costs and pricing competitively in the industry.

Question 7: Why natural monopolies often regulated? Site a specific business situation.
Natural monopolies are often regulated because they have a lot of control over essential
goods or services in a market. Think about it like a water utility company in a city. They're
the only ones providing water to everyone, and building all that infrastructure is expensive.
Without regulation, they could basically charge whatever they want or provide lousy service
because people don't have any other choice. So, regulations are put in place to make sure they
treat customers fairly, provide good service, and don't overcharge. It's all about protecting
consumers and making sure everyone has access to what they need.

Question 8: A transfer price is the price charged by one segment of the company for goods
and services provided to another segment. Be able to show and describe through example the
perfect business time and situation to apply the transfer price methods namely: (a) market-
based, (b) cost based, and (c) negotiated.
(a) Market-based Transfer Price:
 Scenario: Let's say our company, ABC Corp, produces components that are also
available in the market from external suppliers.
Example: In this case, we'd use a market-based transfer price. It's like when Segment
A makes electronic components that other companies also sell. So, when Segment B
needs those components, we charge them based on what they'd pay if they bought
them from an external supplier. This ensures fairness and transparency in our pricing.

(b) Cost-based Transfer Price:

Scenario: Sometimes, our production costs vary a lot between segments, and we want
to make sure each segment covers its costs.
Example: Imagine Segment A produces a raw material with high fixed costs but low
variable costs. To make sure Segment A can cover its expenses and make a profit,
we'd use a cost-based transfer price. So, when Segment B needs that raw material, we
charge them based on what it cost us to produce it, plus a markup for profit. This
ensures fairness and helps keep each segment financially healthy.

(c) Negotiated Transfer Price:

Scenario: Other times, there's no clear market price or cost-based benchmark, so we
need to work together to figure out a fair price.
Example: Let's say Segment A creates custom-designed components exclusively for
Segment B's products. These components are unique and not available elsewhere. In
this case, we'd use a negotiated transfer price. Both segments would sit down and
figure out a price that works for both of them, considering factors like production
costs, market conditions, and the importance of the components to Segment B's
products. This way, we can find a fair price that benefits both segments and the
company as a whole.