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Managerial Control

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Firstly, Reading’s proposed price would be accepted by one of the intra-company of Anderson Customized Security (ACS) as it is always better to sell goods to intracompany. Secondly, Reading can also have a profit of $1. Though this would be less profit as Reading could have earned more by selling the component to outsiders but the company has to play its part in supporting the other companies of the same group. This also leads to enhance the image of the company in the group. Moreover, Reading’s manufacturing operation is well below its utilization capacity so it would be better for Reading to manufacture more and improve its performance.Millwall, on the other hand, proposed Reading to supply the component at standard variable manufacturing cost plus 20 percent. The price which Millwall offered was $7.68 which is almost 23% less than the cost Reading incurs in manufacturing the component. Therefore Reading might have problems in selling the component at price less than cost. The Reading’s management attitude might not be positive towards intra-company business as they cannot bear loss.The price which was offered by corporate vice president of finance is equal to the standard full manufacturing costs which include both variable and fixed manufacturing cost and 15 percent markup. The cost figure that was offered by vice president is $10.12 which is just above the cost of the component that Reading manufactures. The figure is also inappropriate for Reading as it will have to sell the component at cost price. Therefore Reading’s management might not be happy with this deal.However, the corporate management priced fair for component because Reading is operating under full capacity and it is better for it to manufacture more components even for a minor profit. Furthermore, the fixed cost for each component would decrease with the increasing number of production of components. But every division wants to make itself strong through their performance as they are evaluated through ROI. Therefore, no company is agreeing on one point.It is not the permanent method to solve the transfer price problem between the two companies (Brauner, 2008). Transfer pricing is when two divisions or two intra-companies of the same group are undergoing a transaction (Robertson, 1996, 1; Christopher, 1994, 44). However in the
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