Eekaydo Inc. is organized on a divisional basis with considerable vertical integration. Mary Sue Oehlke is the new controller of the CarryOn! Division of Eekaydo.

CarryOn! Division makes a variety of leather products, including a portfolio. Product sales have been steady, and the marketing department expects continued strong demand.

Oehlke is looking for ways the CarryOn! Division can contain its costs and thus boost its earnings from future sales. She discovered that CarryOn! Division has always purchased its leather from HIDE, another part of Eekaydo. HIDE has been providing the 3 square feet of tanned leather needed for each portfolio for $9 per square foot.

Oehlke wondered whether it might be possible to purchase CarryOn!'s leather needs at comparable quality from an external supplier at a lower price. Top management at Eekaydo reluctantly agreed to allow the CarryOn! Division to consider purchasing outside the company.

CarryOn! Division management has issued an RFP (request for proposal) for the leather needed for 100,000 portfolios during the coming year. The two best supplier bids are $8 and $7 per square foot from Koenig and Thompson, respectively. Oehlke has been informed that another subsidiary of Eekaydo, Barrows Chemical, supplies Thompson the chemicals that are an essential ingredient of Thompson's tanning process.

Barrows Chemical charges Thompson $2 for enough chemicals to prepare 3 square feet of leather. Barrows' profit margin is 30 percent.

HIDE Division wants to continue supplying CarryOn!'s leather needs at the same price per square foot as in the past. Tom Reed, HIDE's controller, believes the sales are necessary to maintain HIDE's healthy profit margin of 40 percent of sales.

As Eekaydo's finance vice president, you have called a meeting of the controllers of CarryOn! And HIDE. Oehlke is eager to accept Thompson's $7 bid. She points out that CarryOn!'s earnings will show a significant increase if the division can buy from Thompson.

Reed, however, wants Eekaydo to keep the business within the company and suggests that you require CarryOn! To purchase its needs from HIDE. He emphasizes that HIDE's profit margin should not be lost from the company.

From whom should the CarryOn! Divisions buy the leather? Consider both CarryOn!'s desire to minimize its costs and Eekaydo's corporate goal of maximizing profit on a companywide basis.