The federal government vs. York County: a transfer pricing case for managerial accounting students.
Chambers, Valrie ; DiGregorio, Dean ; Royce, Abigail 等
CASE DESCRIPTION
The primary subject matter of this case concerns transfer pricing.
Secondary issues examined include opportunity costs, sunk costs, the use
of progressive levels of critical thinking skills, the application of
classroom knowledge to real life situations, and effective communication
skills. The case has a difficulty of level of two and is appropriate for
sophomore-level students in managerial accounting classes. The case is
designed to be taught in a 1.25 hour class and is expected to require
2.5 hours of outside preparation by students, preferably working in
small groups. Alternatively, the case could be assigned as a project
that requires minimal classroom time.
CASE SYNOPSIS
During their college experience, students are exposed to facts and
theories in many different subject areas. By the time they graduate,
students are expected to have developed critical thinking skills. They
should be able to apply what was learned in the classroom to real life
situations and be able to effectively communicate their analysis and
conclusions. This case is derived from an actual situation occurring
between the federal government and York County, Pennsylvania in 2003, as
described on National Public Radio's Morning Edition. The case
requires students to assume the role of a consultant to York County.
They need to identify the conflict, consider relevant theories, analyze
the situation from both parties perspectives, and suggest a reasonable
solution to the conflict.
THE FEDERAL GOVERNMENT VS. YORK COUNTY: BACKGROUND INFORMATION
You have been hired as a consultant by York County, Pennsylvania to
assist with their negotiations with the federal government. Over twenty
years ago, York County remodeled an unused wing of its county prison to
exclusively house detainees for the Immigration and Naturalization
Service (INS). The county prison holds up to 850 detainees. Currently,
550 detainees (men and women) are being housed. The current facility is
well suited for housing INS detainees. Per the prison warden, "This
is a unique facility. When we set it up, it was designed specifically
for INS." The prison includes a gym, law library with computer
terminals, a property storage area, and hearing rooms where INS judges
sit to hear detainees' cases.
York County charges the federal government $60 per day for each
inmate they house. This is less than the $75 average federal rate paid
for housing detainees, but more than the federal government thinks is
appropriate. The INS General Inspector researched the facility and
estimated that it should only cost $38 per day per detainee. York County
believes that the INS estimate is grossly understated. The INS estimate
appears to have excluded overhead for the facility and is below the
alleged actual direct costs incurred by York County. York County
reinforces its case for $60 per inmate per day by demonstrating that the
average price to house INS detainees is $75 per day per inmate. If a
negotiated price cannot be agreed upon, INS has threatened to move the
detainees to other facilities.
CASE QUESTIONS
Observe the Situation and Identify the Conflict
1A. What is the primary dispute in this case?
1B. Identify typical materials, labor and overhead costs that would
be incurred by York County to house INS detainees?
Consider Relevant Theories
2A. What managerial theories or concepts specifically relate to
pricing decisions between somewhat related parties?
2B. What is the general decision rule for the identified theories?
Analyze the Situation from Both Parties Perspectives
3A. What motives might INS officials have to renegotiate the daily
cost to house INS detainees?
3B. Should York County automatically assume that INS wants to reach
an agreement with them?
3C. If York County refuses to renegotiate the daily rate to house
detainees for INS, what four main options does the federal government
have?
3D. If York County refuses to renegotiate the daily rate to house
detainees for INS, what additional costs and benefits would be incurred
by the federal government under each of its four main options?
3E. If the INS officials choose to act in an apparently irrational
or unfair manner, what can the York County officials do about it?
3F. If York County refuses to renegotiate the daily rate to house
detainees for INS, how will each of the federal government's four
main options affect York County?
3G. If the INS does leave the prison, what alternatives does York
County have regarding the prison?
3H. If York County accepts the $38 per day per detainee offer by
INS, what effect will this decision have on York County's expected
revenues and expenses.
3I. If York County chooses to negotiate a new rate somewhere
between the current rate and the INS desired rate, which costs
identified in question 1B must be considered and which can be ignored to
determine the lowest acceptable rate to charge INS?
Choose a Course of Action and Justify Your Decision
4A. As a consultant, what do you suggest that York County do?
Please explain your conclusions and limit your response to no more than
three (3) paragraphs.
REFERENCES
Horngren, C. T., G. L. Sundem, & W. O. Stratton (2002).
Introduction to management accounting (Twelfth Edition). Upper Saddle
River, New Jersey: Prentice Hall.
National Public Radio (2003). Morning Edition: INS may soon move
detainees from York County Prison in Pennsylvania because officials in
Washington say York County is charging too much to house the detainees.
Retrieved from www.npr.org/programs/morning/3/3/03.Currently at
http://www.npr.org/templates/story/story.php?storyId=1180617.
S. K. Wolcott, & C. L. Lynch (2002). Steps for Better Thinking.
Retrieved March 7, 2003 from http://www.wolcottlynch.com.
Valrie Chambers, Texas A & M University-Corpus Christi
Dean DiGregorio, Southeastern Louisiana University
Abigail Royce, Texas A & M University-Corpus Christi
