Jolly Giant Company has two divisions, the Can Division and the Food Division. The Food Division may purchase cans from the Can Division or from outside suppliers.
The Can Division sells can products both internally and externally. The market price for cans is $100 per 1,000 cans. Dan Jacobs is the controller of the Food Division, and Bonnie Clark is the controller of the Can Division. The following conversation took place between Dan and Bonnie:
Dan: I hear you are having problems selling cans out of your division. Maybe I can help.
Bonnie: You’ve got that right. We’re producing and selling at only 70% of our capacity to outsiders. Last year we were selling all we could make. It would help a great deal if your division would divert some of your purchases to our division so we could use up our capacity. After all, we are part of the same company.
Dan: What kind of price could you give me?
Bonnie: Well, you know as well as I that we are under strict profit responsibility in our divisions, so I would expect to get market price, $100 for 1,000 cans.
Dan: I’m not so sure we can swing that. I was expecting a price break from a “sister” division.
Bonnie: Hey, I can only take this “sister” stuff so far. If I give you a price break, our profits will fall from last year’s levels. I don’t think I could explain that.
I’m sorry, but I must remain firm—market price. After all, it’s only fair—that’s what you would have to pay from an external supplier.
Dan: Fair or not, I think we’ll pass. Sorry we couldn’t have helped.
Was Dan behaving ethically by trying to force the Can Division into a price break? Comment on Bonnie’s reactions.