Read Case 11-26 Transfer Pricing; Divisional Performance . Then answer the following:

1. If you were the manager of the Electrical Division, would you supply the X52 fitting to the Brake Division for $5 each as requested? Why or why not?

2. Assuming the airplane brakes can be sold for $50, what is the financial advantage (disadvantage) for the company as a whole (on a per-unit basis) if the Electrical Division supplies fittings to the Brake Division? Explain your answer.

3. In principle, should it be possible for the two divisional managers to agree to a transfer price in the particular situation?

4. Discuss the organizational behavior problems, if any, inherent in this situation. What would you advise the company's president to do in this situation?