Question: Pima Component's Border Division is operating at capacity. It has been asked by Metro Division to supply it a thermal switch, which Border sells to

Pima Component's Border Division is operating at capacity. It has been asked by Metro Division to supply it a thermal switch, which Border sells to its regular customers for $90 each. Metro, which is operating at 70 percent capacity, is willing to pay $60 each for the switch. Metro will put the switch into a kitchen appliance that it is manufacturing on a cost-plus basis for a larger Asian manufacturing firm. Border has a $51 variable cost of producing the switch. The cost of the kitchen appliance as built by Metro follows:

Metro believes that the price concession is necessary to get the job.
The company uses ROI and dollar profits in evaluating the division's and divisional manager's performance.
Required
a. If you were Border's division controller, would you recommend supplying the switch to Metro? (Ignore any income tax issues.) Why or why not?
b. Would it be to the short-run economic advantage of Pima Components for Border to supply Metro with the switch at $60 each? (Ignore any income tax issues.) Explain your answer.
c. Discuss the organizational and managerial behavior difficulties, if any, inherent in this situation. As Pima's controller, what would you advise the corporation's president to do in this situation?

$270 60 168 96 $594 Fixed overhead and administration . . . . .. . . . . . . . . . . . . . . . . . .

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