Problem # $3$: Interdivisional Dynamics at Global Manufacturing Corp.

Background: Global Manufacturing Corp. is a diversified entity with multiple business divisions.

Its Electronics Division produces a range of products, including the E$200$ component, widely

used in various applications. The Electronics Division, currently operating at full capacity, sells

the E$200$ to external customers for $$7\mathrm{.}50$ each, with a variable production cost of $$4\mathrm{.}25$ per unit.

The Aerospace Division of Global Manufacturing Corp., currently underutilized at $50\%$ capacity,

has approached the Electronics Division requesting a bulk supply of the E$200$ component at a

discounted rate of $$5$ each. This component is essential for a new type of aerospace brake system

the division plans to sell to a prominent aircraft manufacturer. The cost breakdown for the

Aerospace Division$$s brake system is as follows:

$$ Purchased materials $($external suppliers$)$: $$22\mathrm{.}50$

$$ E$200$ component: $$5\mathrm{.}00$

$$ Other variable production costs: $$14\mathrm{.}00$

$$ Fixed overhead and administrative expenses: $$8\mathrm{.}00$

$$ Total production cost per brake system: $$49\mathrm{.}50$

Despite the lower offer price for the E$200$ component, the Aerospace Division's manager insists

that this discount is crucial for securing a lucrative contract with the aircraft manufacturer, which

is poised to reject any bids over $$50$ per unit. Paying $$7\mathrm{.}50$ per E$200$ component would render

the Aerospace Division noncompetitive or lead to significant losses, especially given its current

low capacity utilization.

Global Manufacturing evaluates its divisions based on return on investment $($ROI$),$ influencing

how internal transactions like these are viewed and decided.

Required Analysis:

$1.$ Minimum Transfer Price for the Electronics Division: Calculate the lowest acceptable

transfer price for the E$200$ component from the perspective of the Electronics Division. If

you were in charge of this division, would you approve the transfer of components at $$5$

each to the Aerospace Division? Provide a rationale for your decision, considering both

cost implications and capacity constraints.

$2.$ Overall Financial Impact: Assess the net financial impact for Global Manufacturing Corp.

if the Electronics Division agrees to supply the E$200$ components at the requested price,

assuming the Aerospace Division can secure the brake system contract at $$50$ per unit.

Analyze the implications on a per$-$unit basis.

$3.$ Aerospace Division's Transfer Price Limit: Determine the highest price the Aerospace

Division would be willing to pay for the E$200$ component without jeopardizing the brake

system contract. Discuss whether there is a feasible price range that could be mutually

acceptable for an internal transfer between the two divisions.

$4.$ Organizational Behavior and Management Recommendations: Identify potential

organizational behavior issues arising from this interdivisional negotiation. What

conflicts or inefficiencies can emerge from such scenarios within decentralized

companies? Offer strategic advice to Global Manufacturing Corp.$\text{'}$s president to address

these challenges and foster more collaborative interdivisional relationships