Unit III Case Study The Case Study in Unit III (Case Study 5-15: U.S Pump Systems) is located on pag

Unit III Case Study

The Case Study in Unit III (Case Study 5-15: U.S Pump
Systems) is located on pages 210-211 in your textbook. Read the
case and utilize the data included in the case to answer the
following question:

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 DivisionOperating Statement-Last yearTo Installation Division To OutsideSalas 20k@ $40 $800,000 20,000 @ $60$1,200,000Variable cost @ $30 (600,000) (600,000)Fixed Cost (135,000) (135,000)Gross margin $ 65,000 $465,000Analyze 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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