Manhattan Corporation has several divisions that operate as decentralized profit centers. At the present time, the Fabrication Division has excess capacity of 5,000 units with respect to the UT- 371 circuit board, a popular item in many digital applications. Information about the circuit board follows. Market price $48 Variable selling/distribution costs on external sales Variable manufacturing cost 21 Fixed manufacturing cost 10 Manhattan's Electronic Assembly Division wants to purchase 4,500 circuit boards. It can purchase the boards in the marketplace for $46 or buy them internally from the Fabrication Division. The Electronic Assembly Division's management feels that if the second alternative is pursued, a price concession is justified, given that both divisions are part of the same firm. The best process to determine the price ultimately charged by the Fabrication Division to the Electronic Assembly Division for the circuit board is to: Oa. establish the price through an arbitration committee. Ob. have top management specify the price. Oc. set the price equal to the price that would be charged if the Fabrication Division had no excess capacity. Od. establish the price through negotiations between the managers of the two divisions.
Manhattan Corporation has several divisions that operate as decentralized profit centers. At the present time, the Fabrication Division has excess capacity of 5,000 units with respect to the UT- 371 circuit board, a popular item in many digital applications. Information about the circuit board follows. Market price $48 Variable selling/distribution costs on external sales Variable manufacturing cost 21 Fixed manufacturing cost 10 Manhattan's Electronic Assembly Division wants to purchase 4,500 circuit boards. It can purchase the boards in the marketplace for $46 or buy them internally from the Fabrication Division. The Electronic Assembly Division's management feels that if the second alternative is pursued, a price concession is justified, given that both divisions are part of the same firm. The best process to determine the price ultimately charged by the Fabrication Division to the Electronic Assembly Division for the circuit board is to: Oa. establish the price through an arbitration committee. Ob. have top management specify the price. Oc. set the price equal to the price that would be charged if the Fabrication Division had no excess capacity. Od. establish the price through negotiations between the managers of the two divisions.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Manhattan Corp
Transcribed Image Text:Manhattan Corporation has several divisions that operate as decentralized profit centers. At the
present time, the Fabrication Division has excess capacity of 5,000 units with respect to the UT-
371 circuit board, a popular item in many digital applications. Information about the circuit
board follows.
Market price
$48
Variable selling/distribution costs on external sales
Variable manufacturing cost
21
Fixed manufacturing cost
10
Manhattan's Electronic Assembly Division wants to purchase 4,500 circuit boards. It can
purchase the boards in the marketplace for $46 or buy them internally from the Fabrication
Division. The Electronic Assembly Division's management feels that if the second alternative is
pursued, a price concession is justified, given that both divisions are part of the same firm. The
best process to determine the price ultimately charged by the Fabrication Division to the
Electronic Assembly Division for the circuit board is to:
Oa. establish the price through an arbitration committee.
Ob. have top management specify the price.
Oc. set the price equal to the price that would be charged if the Fabrication Division had no
excess capacity.
Od. establish the price through negotiations between the managers of the two divisions.
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