VOXX International is a publicly traded multi-national US electronics company with manufacturing facilities on 4 continents and $3Billion USD in annual sales.

The companys most profitable operating division, Automotive Electronics (AE) accounts for 25% of revenues and manufactures automotive OE and after-market electronics, including infotainment head-units (radios that control navigation, MP3, Bluetooth, etc.). The division has been averaging annual sales growth of 5% and 19% gross margins. The head of the AE division is a long-time employee who is highly-respected and very influential in the company. He is also open-minded and approachable.

The companys biggest operating division by sales, at 35% of revenues, is the Consumer Electronics division (CE), which manufactures a broad range of consumer electronics products sold under various proprietary and private-label brands. The CE divisions annual sales have been rising year-to-year at about 3%, but net margins are a meager 2%. The head of the CE division is a long-time employee who is friendly and approachable, but bottom-line oriented, unimaginative, and has very little influence.

The companys worst-performing division is the wireless division, AV Wireless (AV), which makes cellular handsets, and accounts for 30% of revenues. The wireless divisions sales have been increasing at the same rate, but at an average net loss of 2% annually for the past 3 years. Cellular handsets are sold directly to wireless operators under private-label agreements. The head of the wireless division is very influential because he is a board member and owns substantial stock in the company. However, he is extremely competitive, has a huge ego, and is unpredictable.

The international division, AV International (AVX) accounts for 10% of company global sales but international sales have declined 50% over the past 5 years. The sharp decline is due mainly to new EU directives mandating new technical standards for E and CE certifications, which have been adopted globally but which the company has not met, as well as market innovations, particularly RDS (Radio Data System), a land-based Digital Radio alternative to satellite radio which has had functionality issues but is nonetheless extremely popular with consumers because it transmits data such as station ID, call letters, etc., as well as program info such as song and artist info, which the company has not kept up with.

You are the newly-hired manager of the international division and must reverse the divisions decline. You determine that the only way to do so is to redesign international product lines to meet the new EU technical standards and emerging market trends. One of the key products you must redesign is head-units as radio frequencies outside the US now operate on a different spectrum, required by EU standards, with frequency steps of 50hz whereas US units operate on 200hz frequency steps; i.e., US-spec units tuned to 95.5 on the FM band will next scan 95.7, then 95.9, etc., whereas European-spec units scan in 50hz steps, causing US units operating in foreign markets to skip 3 out of 4 frequencies on the new spectrum (i.e., if tuned to 95.5, the next frequency they will stop at is 95.7, skipping over 95.55, 95.60, and 95.65). Additionally, markets outside the US now use RDS and the US does not.

Lastly, in order for any new international head-units to be profitable at competitive price points you must increase production significantly over the previous years annual sales with no certainty that international sales channels can absorb the increase. However, the companys factories are all operating at full capacity, which would require that another division cut its production of head units in order to produce the new international units in the volume required to be priced competitively.

The CEO of the company, to whom you report directly, has instructed you and the other division managers to prepare production plans that include the new international units at the volume required to be priced competitively. This will require that at least one of the other division managers cut their production to allow for the international units to be produced in sufficient quantities (and which will likely result in a cut in the division managers compensation).

1. Can this conflict be resolved?

2. If it cant be resolved;

a. How many units would need to be produced if fixed costs are $7,000,000, unit variable costs $46.00, and the contribution margin $9?

b. Which divisions production will you recommend be cut?