A consulting firm, TAC, is decentralized with 25 offices around the country. The headquarters is based in Vancouver. Another operating division is located in Calgary. A printing subsidiary operation, Kwik Print, is located in the headquarters building. Top management has indicated the desirability of the Calgary office using Kwik Print for printing reports. All charges are eventually billed to the client, but TAC is concerned about keeping such charges competitive. 

Kwik Print charges the Calgary office the following. 

Photographing page for offset printing (a setup cost) Printing cost per page $0.240 Printing cost per page 0.014 At this rate, Kwik Print sales have a 60 percent contribution margin to fixed overhead. Outside bids for 100 copies of a 120-page report needed immediately are: 

Print 4U          $203.50 

Jiffy Press         179.25 

Kustom Print   184.00 

These three printers are located within a five-kilometre radius of TAC’s Calgary office and can have the reports ready in two days. A messenger would have to be sent to drop off the original and pick up the copies. The messenger usually goes to headquarters, but in the past, special trips have been required to deliver the original or pick up the copies. It takes three to four days to get the copies from Kwik Print (because of the extra scheduling difficulties in delivery and pickup). 

Quality control at Kwik Print is poor. Reports received in the past have contained wrinkled pages, have occasionally been miscollated, or have had pages deleted altogether. (In one instance, an intracompany memorandum including the Calgary Office’s financial performance statistics was inserted in a report prepared for an outside client. Fortunately, the Calgary office detected the error before the report was distributed to the client.) The degree of quality control in the three outside print shops is unknown. 

1. If you were the decision maker at the Calgary office of TAC, to which print shop would you give the business? Is this an optimal economic decision from the entire organization’s viewpoint? 

2. What would be the ideal transfer price in this case, if based only on economic considerations? 

3. Time is an important factor in maintaining client goodwill. There is potential return business from this client. Given this perspective, what might be the optimal decision for the company? 

4. Comment on the wisdom of top management in indicating that Kwik Print should be used.