somthing was wrong

and im not sure what

Integrative Cuse 15-50 Custom Freight Systems (B): Transfer Pricing (LO 15-1, 2, 3) We can't drop our prices below $2,50 per hundred pounds, exclaimed Greg German, manager of Forwarders, a division of Custom Freight System. 'Our margins are already razor thin. Our costs just won't wlows to go any lower Corporate rewards our vision based on our profitability and I won't lower my prices below $210." Custom Freight System is organized into three divisions: Air Cargo provides a cargo services, Logistics Services operated distribution centers and provides truck cargo services, and Forwarders provides International freight forwarding service (1 Exhibit 15.6). Freight forwarders typically buy space on planes from international air cargo companies. This is analogous to a charter company that books seats on passenger planes and resells them to passengers in many cases, freight forwarders hire trucking companies to transport the cargo from the plane to the domestic destination Management believes that the three divisions Integrate well and are able to provide customers with one-stop transportation services. For example, a Forwarders branch in Singapore would receive cargo from shipper, prepare the necessary documentation and then ship the cargo on Air Cargo to a domestic Forwarders station. The domestic Forwarders station would ensure that the cargo passes through customs and would ship to the final destination with Logistics Services as in Exhibit 15.6 Management evaluates each division separately and rewards divisional managers based on profit and return on investment (ROI). Responsibility and decision making authority are decentralized. Similarly, each division has a sales and marketing organization Divisional salespeople report to the vice president of Operations for Custom Freight Systems Soo Exhibit 15.7 Custom Fight Systems believes that it success motivates divisional managers by paying bonuses for high divisional profits. Recently, the Logistics division needed to prepare a bid for a customer. The customer had fright to import from an overseas supplier and wanted Logistics to submit a bid for a distribution package that included supplying air rigt, meceiving the freight and providing customs clearance services at the airport, warehousing, and then distributing packages to customers. Because this was a contract for international shipping, Logistics needed to contact diferent freight forwarders for shipping quotes. Logistics requested quotes from Forwarders and United Systems, a competing traightforwarder Divisions of Custom Freight Systems are free to use the most appropriate and cost-effective suppliers. Logistics received bids of $210 per hundred pounds from Forwarders and $185 per hundred pounds from United Systems Forwarders specified in its bid that it will use Air Cargo, a division of Custom Freight Systems Forwarders variable costs were $175 per hundred pounds, which included the cost of subcontracting air transportation. Ar Cargo, which was experiencing a period of excess capacity quoted Forwarders the market rate of $155. Typically. Ar Cargo's variable costs are 60 percent of the market rate The new bid is from World Services for $195 per hundred pounds. World has offered to use Ar Cargo for transporting packages. Ar Cargo will charge World $155 per hundred pounds The price ference between the two different bids alarmed Susan Burns, a contract manager at Logistics. She knows this is a competitive business and is concemed because the difference between the high and low bids was at least 1 milion (current projections for the contract estimated 4 160.000 pounds during the first your) Susan contacted Greg Berman, the manager of Forwarders, and discussed the quote. "Dont you think til markup is unwanted due to the fact that you and the itines have so much excess capacity" she asked Susan soon reared that Greg was not going to drop the price quote. "You know how small the margins in this business are. Why should I cut my margins even smaller just to make you look good he asked. Susan went to Bennie Espinosa, vice president of Operations for Custom Freight Systems and chairperson for the corporate trategy committee. "That does sound strange," he said. "I need to in the overal cost structure and talk to Greg.nl get back to you by noon Monday." Requlred: 1. Determine the total company cost in all three purchase scenarios. $ 133 Total company cost (purchasing internally) Total company cost (purchasing externally from United) Total company cost (purchasing externally from World) $ 185 $ 195 2. Which bid should Logistics Services division take? Internal bid from Forwarders Division O External bid from United Systems External bid from World Services