General Appliance Corporation

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  • Topic: Pricing, Cost, Transfer pricing
  • Pages : 2 (571 words )
  • Download(s) : 710
  • Published : November 16, 2014
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Executive Summary
The General Appliance Corporation (GAC), specializing on manufacturing various kinds of home appliances. The GAC was decentralized and it divided into 4 main product divisions, 4 manufacturing divisions as well as 6 staff offices. GAC manufactured few component parts and usually bought them from outside vendors. Transfer prices of the parts were negotiated between departments based on outside suppliers’ price. While the purchasing staff had the power to settle disputes when there was a disagreement. This management style and method created various problems within the company because the lack of communication, coordination, and motivation. Besides, departments have less 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 Analysis
Issue #1 “Stove top Problem”:
When the chrome products 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 increase the cost of the stove top ($10) by a dollar. 90 cents less than outside supplier (manufacturing costs are deemed to have increased by 80 cents). (Quality; communication; transfer prices Resolution: Engineer department said the costs were reasonable and quality control said the quality improved and better than previously supplied.

Issue #2 “thermostatic control problem”
Refrigeration Division initially used 25% of their Thermostatic Control 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. After 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...
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