Notes
1) Discuss the approaches advocated by Parks and Ravenport, respectively.
Parks advocates that divisions have autonomy in pricing their products and that Joe Tisch, Chief Controller for Sub-Micron would not stand in their way.
Ravenport believes that as long as they are not ruining their prices by accepting a lower priced order they should sell excess capacity at any price that is equal to or greater than variable costs. He argues that idle capacity is worse since it has no contribution to overheads whereas a lower price above variable costs would have some positive contribution to the fixed costs and therefore improve profitability for the division. He believes a price of $40 is insufficient to cover the total costs and that the systems division does not want to subsidize the overheads of outside buyers.
What decisions will each of these approaches lead to?
Evaluate the decisions.
2) If you were the responsible manager at the ASIC Division, would you accept Western's offer?
3) Put yourself in the shoes of Joe Tisch, Chief Controller for Sub-Micron.
What would you do in this situation?
4) What are the takeaways from this case?
Each profit center should have the right to determine it’s own pricing for it’s products.
1) Discuss the approaches advocated by Parks and Ravenport, respectively.
Parks advocates that divisions have autonomy in pricing their products and that Joe Tisch, Chief Controller for Sub-Micron would not stand in their way.
Ravenport believes that as long as they are not ruining their prices by accepting a lower priced order they should sell excess capacity at any price that is equal to or greater than variable costs. He argues that idle capacity is worse since it has no contribution to overheads whereas a lower price above variable costs would have some positive contribution to the fixed costs and therefore improve profitability for the division. He believes a price of $40 is insufficient to cover the total
Parks advocates that divisions have autonomy in pricing their products and that Joe Tisch, Chief Controller for Sub-Micron would not stand in their way.
Ravenport believes that as long as they are not ruining their prices by accepting a lower priced order they should sell excess capacity at any price that is equal to or greater than variable costs. He argues that idle capacity is worse since it has no contribution to overheads whereas a lower price above variable costs would have some positive contribution to the fixed costs and therefore improve profitability for the division. He believes a price of $40 is insufficient to cover the total costs and that the systems division does not want to subsidize the overheads of outside buyers.
What decisions will each of these approaches lead to?
Evaluate the decisions.
2) If you were the responsible manager at the ASIC Division, would you accept Western's offer?
3) Put yourself in the shoes of Joe Tisch, Chief Controller for Sub-Micron.
What would you do in this situation?
4) What are the takeaways from this case?
Each profit center should have the right to determine it’s own pricing for it’s products.
1) Discuss the approaches advocated by Parks and Ravenport, respectively.
Parks advocates that divisions have autonomy in pricing their products and that Joe Tisch, Chief Controller for Sub-Micron would not stand in their way.
Ravenport believes that as long as they are not ruining their prices by accepting a lower priced order they should sell excess capacity at any price that is equal to or greater than variable costs. He argues that idle capacity is worse since it has no contribution to overheads whereas a lower price above variable costs would have some positive contribution to the fixed costs and therefore improve profitability for the division. He believes a price of $40 is insufficient to cover the total