Abrams Company is a manufacturer of variety of parts for use in automobiles, trucks, buses and farm equipment. It has two major sources of customers, original equipment manufacturers (OEMs) and wholesalers. There is a vice president in charge of those three major parts division. Each division has its own OEM departments for the new products or innovative existing products, while leaving the old ones to the fourth departments of Abrams Company – the Aftermarket Marketing Division. This division operated several company-owned parts distribution warehouses in the US and foreign markets. In the 1992 sales break up, AM division had a $180M sales of the total $500M inside and outside sales of four division. For the sake of the high number of vehicles sold, top management’s goal was to target high expected growth in AM division. When looking into the company’s overall strategies and goals, ROI is an important indicator for their targeting, budgeting and planning. In order to make Abrams company’s own financial reports similar to external ones, it included the allocated overhead expenses and taxes in determining profit. In addition, Abrams allocated the net assets, cash and receivables based on sale values, while for the property, plant and equipment, it preferred the book value traced specifically to each plant. Marketing strategies always determine the company’s overall performance. Because of the different customers between AM division and other three product divisions, they have their own OEM marketing since tow of the three product divisions were previously independent companies. In addition, implementing the cost control was crucial to all of the divisions.
There are three top management concerns:
* The dispute regarding the transfer pricing of spare parts are sold by the production division to division marketing * Top management felt that production division often treat AM division as captive market *...