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Singaporean subcontractors did not have the technology to
manufacture PCA's to satisfy Compaq U.S. quality expectations.
Standard Costs
Like most organizations that produce a large number of
individual products using processes that are both complex and
relatively standardized, during the years in issue, Compaq U.S.
and Compaq Asia tracked their manufacturing costs using a
standard cost system that assigned specific costs to arrive at a
material standard, a labor standard, and an overhead standard.
The standard material costs for Compaq U.S. and Compaq Asia were
estimates of future costs expected to be paid for materials from
vendors on the Compaq U.S. AVL. The standard labor and overhead
costs for Compaq U.S. were based on forecasted production in the
Houston facility. The standard labor and overhead costs for
Compaq Asia were based on forecasted production in the Singapore
facility. The standard costs for material, labor, and overhead
for Compaq Asia were generally lower than the same standard costs
for Compaq U.S.
Transfer Prices
Purchases from Compaq Asia satisfied approximately one-half
of the PCA needs of Compaq U.S. from 1990 to 1993. During that
time, Compaq U.S. purchased the following amounts of PCA's from
Compaq Asia:
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