Caja Espana

The case describes the transfer pricing (“adjustment rate”) system at Caja Espana.

a) Use the adjustment rates in Exhibit 6 to calculate the profit of the Gradefes and Madrid-Barrio de Salamanca branches, according to the procedure described in the profitability analysis section of the case.
GRADEDEFS
INCOME SHEET Amount Rate Financial Acc.
Interest Revenue 270,000
Interest Charged to Treasury on Checking Account 10,000,000 4.01% 401,000
Interest Charged to Treasury on Term Deposits 15,000,000 2.11% 316,500
Interest Charged on Mortgages to Customers 6,000,000 4.06% 243,600
Interest Charged on Credit Lines to Customers 1,000,000 2.64% 26,400
Total Interest Revenue 987,500 270,000
Interest Expense 287,500
Interest Paid to Treasury on Mortgages 6,000,000 2.25% 135,000
Interest Paid to Treasury on Credit Lines 1,000,000 2.19% 21,900
Interest Paid to Treasury on Cash 500,000 4.01% 20,050
Interest Paid to Customers on Checking Account 10,000,000 0.100% 10,000
Interest Paid to Customers on Term Deposits 15,000,000 1.850% 277,500
Total Interest Expense 464,450 287,500
Net Interest Margin 523,050 (17,500)
Fee Revenue 17,000 17,000
Total Commercial Revenue 540,050 (500)
ATM/Branch Rev.(Exp.) (30,000)
Standard Cost
Branch manager (50,000) 1
Controller (40,000) 1
Commercial Officers (25,000) 0 (90,000) (75,000)
Flat Fee (12,000)
Usage Fee 10 1,621 (16,210)
Other Expenses (30,000) (30,000)
Operating Margin 361,840 (105,500) Diff. (467,340)

MADRID-BARRIO
INCOME SHEET Amount Rate Financial Acc.
Interest Revenue 802,000
Interest Charged to Treasury on Checking Account 3,000,000 4.01% 120,300
Interest Charged to Treasury on Term Deposits 2,000,000 2.11% 42,200
Interest Charged on Mortgages to Customers 10,000,000 4.06% 406,000
Interest Charged on Credit Lines to Customers 15,000,000 2.64% 396,000
Total Interest