General Appliance Corporation Essay

Executive SummaryThe General Appliance Corporation (GAC), specializing on manufacturing different kinds of home appliances. The GAC was decentralized and it divided into 4 main increase divisions, 4 manufacturing divisions as well as 6 staff offices. GAC manufactured fewer component parts and usu on the wholey bought them from right(prenominal) vendors. Transfer termss of the parts were negotiated between departments based on outside suppliers impairment. While the purchasing staff had the confidence to settle disputes when there was a disagreement. This management style and method created unlike fusss within the company because the lack of communication, coordination, and motivation. Besides, departments have slight power and authority on resources allocation and there was extensive measurement in the company. As a result, GAC has to refine its transfer rules, setting guidelines to avoid disputes between divisions and outside vendors.Issues and AnalysisIssue 1 Stove out match ProblemWhen the plate intersection points division sold a chrome plated unit that fitted on the top of the stove. Due to various complaints from customers, chrome products division to refine products leading an amplification the live of the stove top ($10) by a dollar. 90 cents less than outside supplier (manufacturing costs atomic number 18 deemed to have appendd by 80 cents). (Quality communication transfer prices Resolution Engineer department tell the costs were reasonable and quality control said the quality meliorate and better than previously supplied.Issue 2 thermostatic control line of workRefrigeration Division initially used 25% of their Thermostatic project Unit produced from Electric Motor Division internally. All remaining unites are purchased from Monsoon Controls Corp in 1985. It increased to 100% produced internally by 1988. by and by Monsoon Controls proposed a price of $2.15/unit, electric motor division refuses to drop its price lower than $2.40 to all products divisions. Resolution Refrigeration Division could purchase all at $2.15 but the price is lower because of excess capacity. If purchase all, the price would go up to around $2.40 too.Issue 3 transmission problemThe Laundry Division produces automatic washers and bought its parts from two sources internally in the Gear and Transmission Division and externally form the Thorndike Machining Corp. GAC would like to cover and wanted to produce all the manufacturing parts, therefore, not renewing contract with Thorndike. Thorndike proposed a new price with reductions because they had specially built machines for the transmission and expected to increase productivity. Gear division also develop a lower cost and better performance transmission. Laundry Division refused to accept the price of $12 and proposed $11.21 instead. Resolution The Finance department thought the costs of the Thorndike unit was 11.25 and engraft out the price of the Gear and transmission price was in fallacy and could be degrade by 50 cents. The purchasing staff verbalise that laundry division can obtain from outsource at the quoted price for a better future.RecommendationGAC should refine its transfer pricing policies and methods to reduce disputes between divisions within company. First, they can focus more on nobble term profit maximization because signing long term contracts with all divisions will causes higher cost prices. As a good company, its product quality should be in their main consideration, customer will purchase better quality rather than its price. Third, the management should give power to the product division to select which manufacturers they wanted. However, they have to bear the consequences if the results gone unskilled (e.g. bad quality for cheaper price). Forth, A committee should set up to investigate the pros and cons to the divisions for a better decisions and judgments for product division to made before ordering parts.