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(Answered) US Pumps is a multidivisional firm that manufactures and installs


US Pumps is a multidivisional firm that manufactures and installs
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US Pumps is a multidivisional firm that manufactures and installs chemical piping and pump systems. Its valve division makes a single standardized valve. The valve division and installation division currently are involved in a transfer-pricing dispute. Last year, half of the valve division?s output was sold to the installation division for $40 and the remaining half was sold to outsiders for $60.,

 

,

 

The existing transfer price of $40 per pump has been set through a negotiation process between the two divisions and with the involvement of senior management. The installation division has received a bid from an outside value manufacturer to supply it with an equivalent valve for $35 each.,

 

,

 

The valve?s division?s manager has argues that if it is forced to meet the external price of $35 it will l ose money on internal sales.,

 

The operating data for the last year for the valve division follow:,

 

,

 

Valve Division,

 

Operating Statement-Last year,

 

,

 

To Installation Division To Outside,

 

,

 

Salas 20k@ $40 $800,000 20,000 @ $60,

 

$1,200,000,

 

Variable cost @ $30 (600,000) (600,000),

 

Fixed Cost (135,000) (135,000),

 

Gross margin $ 65,000 $465,000,

 

,

 

Analyze the situation and recommend a course of action. What should the installation division managers do? What should the valve division managers do? In your opinion, what should the US Pumps senior manager do? ,

 


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