Managerial Control Essay Example | Topics and Well Written Essays - 1250 words

Managerial Control - Essay Example The performance of every division is evaluated through its Return on Investment (ROI) (Jensen, and Meckling, 1976, 306) and this is the same with ACS as well. Millwall Company has been awarded the contract for a specific project. The project requires the component which is manufactured by Reading company. The Reading Company is operating less than full capacity. Millwall has requested to buy the component for his project from Reading. As there is no transfer pricing policy of ACS therefore Reading offered Millwall the component at regular price less selling and distribution expense. But this offer was not accepted by Millwall and it has proposed to pay Reading the price which was less than cost of the component. The corporate management of ACS has tried to negotiate between the two companies and offered Reading $10.12 for component. The figure was evaluated by the combination of standard full manufacturing cost plus 15 percent markup. However this suggestion was not accepted by both companies. Reading regularly sells the component at $13 to outsiders. However Millwall estimated the cost figure of the component at $7.60. Reading offered to supply that component to Miilwall at $11.20 which was extracted from regular price i.e. $13 less variable and distribution expenses i.e. $1.20. The figure shows that reading would have profit of $1.80 if it supplies the component to Millwall at $11.20. The acceptance of the Reading’s proposed price by Millwall might have positive effect on the attitude of Reading’s management toward intra-company business. 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 $1.80. 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