Case Presentation On
General Appliance
Corporation
Prepared by:
Vishrant Gandhi
Tushar Vara
Hema Jambwani
Disha Lunagariya
Jayesh Thummar
Bhavesh Patel
Facts Of case
• Manufacture all type of home appliances.
• Had a decentralized divisional organization consisting
of four product division, four manufacturing division,
and six staff office.
• All divisional personnel are responsible to the division
managers.
Q:1 Be prepare in each of the disputes to play all three of the following roles:
general manager of the supplying division, general manager of the supplying
division, member of financial staff responsible for arbitrating the dispute.
P1: Stove Top Problem
• Seller: Chrome division
• Buyer: Electric Stove division
• 1986, GAC concerned over complaints from
customer and dealers
• Customer survey
• Corrosion and appearance test
• Change in appearance costs 80 cents (cost)+ 10
cents(profit markup)= 90 cents
P2: Thermostatic Control Problem
• Electric Motor Division produced thermostatic control units.
• Laundry Equipment Division buy 100000 units in a year from
EMD.
• Refrigeration Division requirement 20000 units in a year, buy
from the Monson Control Corporation till 1985.
• From 1988, Refrigeration Division buys all it’s requirement
from EMD for the best interest of the company.
• In 1984, the demand for this kind of thermostatic control unit
was high in relation to the industry’s production capacity.
• So that many companies have built or expanded their own
facilities to produce this unit, so that price decreases.
• Which resulted into decrease in before tax profit by 15%
on its investment of EMD in 1984 to nearly zero in 1987.
• In August 1987, the Monson Control Corporation
reduced its price to the refrigeration division by 25 cents
retro-active to July 1.
• In October 1987, the EMD and the Refrigeration division
were negotiating 1988 price.
• The refrigeration division proposed a price of $2.15, the
EMD refused to reduce its prices below $2.40 for both
the division.
P:3 Transmission Problem
• Productive Division: Laundry Equipment Division
• Initial Purchase :
o Gear and Transmission Division (Internal Division)
o Thorndike Machining Corporation (Outside supplier)
• 10 years agreement
Contd…..
• Reconsider the problem
• Proposed price reductions
Present price $14.00
Price effective 7/1/85 13.50
Price effective 7/1/86 13.00
Price effective 7/1/87 12.50
Price effective 7/1/88 12.00
Q. 2 What, if any, changes in the company’s
transfer price policies and procedures would you
recommend?
• Use scientific method rather then use the negotiation
method.
• Implementation of two step pricing system should be
used.
• Here first for each unit sold a standard variable is
charged, & second a periodic charge is made that is
equal to the fixed costs associated with the facilities
reserved for the buying unit.
