Macy's Enterprises Macy's Enterprises is a multi-divisional computer hardware manufacturer and supplier. CEO: Penny Mason believes divisional managers should be left to manage their divisions as they see t; as long as each division continues to meet ROI targets. This seems to have worked well in the past. Approximately, 50% of each divisions' activity is transferred internally. Penny supports a transfer pricing policy of full sourcing autonomy and use of the negotiated method. She does however, expect when internal transfers are arranged, the prevailing market price should be the starting point of negotiations. When major sourcing disputes occur, senior accountant Ryan Wang is given the task of resolving it. Ryan finds his biggest dilemma is whether to intervene in disputes or not. Current dispute Ryan is trying to resolve: The Charlie Division has developed a new microprocessor that is superior to previous models and is in demand by the Lewis Division. The microprocessor uses parts produced by the Lani Division. The Lani Division has no trouble supplying these parts as it has spare capacity. Two outside companies have also offered to supply the Lewis Division with similar, newly developed microprocessors. The purchasing manager of the Lewis Division cannot identify any material differences between the three microprocessors. The Charlie Divisional manager Anne Kean - has brought the issue to the attention of Ryan Wang, as she believes the processors should be sourced from her Division, partly due to the fact that the microprocessors were developed according to the specications provided by the Lewis Division. There are two external suppliers willing to provide the processors: Paddy Pty Ltd and Billy Pty Ltd. If Billy Pty Ltd was to be the preferred supplier, it would source some components from other Macy Divisions. A summary of the situation including financials is provided in the diagram below. Paddy Pty Ltd $450 Billy Pty Ltd $455 Lewis Division SP: 40 Cost: 20 $500 ..20 profit to Charlie SP: 500 Charlie Division Cost: 440 SP:60 ... 60 profit to Charlie Cost:40 ...20 Profit to Lani SP: 300 Cost: 180 ... 120 profit to Lani Lani Division Based on the case facts of Macy's Enterprises, the Lewis Division is likely to source the microprocessor from:O Paddy Pty Ltd as $450 is the lowest price for the Lewis Division O Paddy Pty Ltd as that is the lowest cost to Macy Enterprises O Charlie Division as $500 is not the real cost to Macy's Enterprises O Billy Pty Ltd as the price is lowered by additional transactions with Macy's Enterprises