= Menu CSAC3510 IMA Group a... X + Create Sign in X All tools Edit Convert E-Sign Find text or tools Q H Al Assistant CSAC3910 Group Case CASE continuing S: | YORK L "Growth opportunities are always accompanied by challenges," exclaimed the CEO of GeoBab She then went on to explain why you, a consultant, were hired. GeoBab started business in the city of Waterloo in 1951 as a manufacturer of televisions and electrical produ Television manufacturing was discontinued in the 1970s. GeoBab remained in the electrical products busines markets. New products had to be constantly developed those products was short, and thus many products were exited after a few years. In addition, competition and the need to be cost effective obliged GeoBab to locate new plants in China and todia and to enter into outsourcing er ements. Along the way, GeoBab also acquired about 30 small manufacturing plants. The result has been that GeoBab now has 36 plants worldwide Systems integration attempts were a constant challenge because of acquisitions, outsourcing entations. If there had been a uniform enterprise to resolve. d, there would have been fewer problems for you Sung, one of the older, larger divisions, has been subject to a series of problems, which the division's general manager and his controller have not been able to resolve. The CEO introduced you to the general manager and the controller. They explained that the sales have montrealevery day completed year being typical of the last three. A bigger problem has been that for the first year in decades, actual profits have become negative. You are shown the operating statement in Exhibit 1. After a quick review of the operating statements, you asked if there have been any changes to the manufacturing process. You were told that the only change has been the use of a new supplier for the major components. The new supplier, EL Manufacturing, was an acquisition by GeoBab that occurred late in the previous year. The acquisition was premised largely on EL being able to replace most of sung's existing suppliers. The components from EL have defects, materials and labour were needed, and rework and soole and spoilage were charged to overhead. for shot on the cost of quality and customer satisfaction, and general manager that El wants a higher price for the components being supplied to Sung The general manager at Sung is opposed to any increase in price paid to EL because the market price is less than what EL currently charges. (You confirm with an independent source that EL Page 1 of 4 CSAC3510 Group Case 1 is presently charging Sung five percent over the market price for the components!) Two days later, the CEO introduces you to the general manger of EL. The financial statements 4 for EL are contained in Exhibit ction goes to Sung at a markup over costs sufficient to yield a 20 percent ROI, which is GeoBab's markup for setting transfer prices between divisions. This arrangement started at the beginning of the year that just ended. The general manager of > EL wants the markup to be increased in order to earn a 25 perc consistent with what is earned by other, independent firms making the same components. i he says is (You confirm that those other firms were earning 25 percent ROIs.) ROI, % (16.7)