Us pump is multidivisional firm tha manufactures and

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Reference no: EM13600057

U.S. pump is multidivisional firm tha manufactures and installs chemical piping and pump systmes. The valve division makes a single standardized valve. Last year half of the valve divisions output was sold to the installations division for $40 and the remaining half was sold to outsiders for $60. The existing transfer price has been set at $40/pump through a process of negotiation bet the two divisions with involvement of sr mngt. The installation div has rcvd a bid frm an outside valve manufacturer to supply it w/ an equivalent valve for $35 each. The mgr. of the valve div argued that if it is forced to mee the xternal prize $34 it will lose money on selling internally. Last years operating sstatement:
To Installation Div To Outside

sales 10,000@$40 $800,000 20,000@$60 $1,200,000
variable cost 20,000@$30 (600,000) (600,000)
Allocated fixe cost (135,000) (135,000)
Gross margin $65,000 $ 465,000

Analyze the situation and recommend a course of action. What shld installation div managers do? What shld valve div do? What shld u.s. pump's senior mnagers do?

Reference no: EM13600057

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