Page 9 - CIMA MCS Workbook May 2019 - Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

manufacturing operations should be tested and any failures / wastage weeded out before full
production levels can be reached.

Training

Significant training costs will probably need to be undertaken by Jord. There may not be an
established labour market in America for the manufacture of prefabricated housing as it is a
relatively new industry compared to traditional housebuilding. Workers will need to be trained up
on the production processes and in the use of the sophisticated software. Jord cannot afford for
failures and slowdowns in its production processes because of the Just in Time system that it uses.

Learning curves and training

Some of the work involved in the house construction is manual. Unless Jord can recruit staff for
the new subsidiary who are already skilled in the manufacture of prefabricated housing, there is a
high likelihood that even with dedicated training there will be a period of learning where the
construction of the houses is slower than it would be in Corvola.

This will need to be taken into account for any production scheduling, recruitment planning and
costing of work.

Transfer pricing

There may be elements of transfers of supply / knowledge that occur between the Corvola
company and the subsidiary.

For instance, it may be that a fee is charged to the subsidiary for the use of the sophisticated IT
system, or that some of the supplies are sourced by the Corvola business and shipped over to
North America.

If this is the case, the company may have to consider transfer pricing issues, bearing in mind that
both countries’ governments may take an interest if the price charge is deemed to be an unfair
reflection of the goods or services transferred.

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