The Moncton division of Glencoe Corporation, operating at capacity, has been asked by the Antigonish division of Glencoe to supply it with Electrical Fitting No. LX29. Moncton sells this part to its regular customers for $10 each. Antigonish, which is operating at 50 percent capacity, is willing to pay $6.90 each for the fitting. Antigonish will put the fitting into a brake unit that it is manufacturing on essentially a cost-plus basis for a commercial airplane manufacturer. 

Moncton has a variable cost of producing fitting No. LX29 of $6. The cost of the brake unit being built by Antigonish is as follows. 

Antigonish believes the price concession is necessary to get the job. The company uses return on investment and dollar profits in the measurement of division and division-manager performance. 

1. Consider that you are the division controller of Moncton. Would you recommend that Moncton supply fitting No. LX29 to Antigonish? Why or why not? (Ignore any income-tax issues.) 

2. Would it be to the short-run economic advantage of the Glencoe Corporation for the Moncton division to supply the Antigonish division with fitting No. LX29 at $6.90 each? (Ignore any incometax issues.) Explain your answer. 

3. Discuss the organizational and manager-behaviour difficulties, if any, inherent in this situation. As the Glencoe controller, what would you advise the Glencoe Corporation president to do in this situation?

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Purchased parts-outside vendors $28.10 Moncton fitting No. LX29 Other variable costs Fixed overhead and administration 10.00 6.90 17.50 $62.50