Abrams Company Essay

Topics: Inventory, Price, Control Pages: 3 (715 words) Published: November 20, 2011
Lecturer : Supriyadi, Ph.D.
Nama : Handy nugroho
No: 1157021

Case : Abrams Company
Abrams’Company manufactured a wide variety of parts for use in automobiles, trucks, buses, and farm equipment. Abrams sold their product both to the OEMs and the wholesalers. top management is satisfied with their management systems and performance measurement scheme but they are three areas of concern that need to be discussed. * First, the transfer prices disagreements of parts sold by the product divisions to the AM division. * Second, is in the product divisions too often tended to treat the AM division as a captive customer and in the performance measurement system. * Third, the excessive yearly inventory carried by both the AM division and the three product divisions. Strength 

The company has a clear management structure.
The company has employed a bonus plan for employees.
The AM Marketing division will input products form the other three divisions, and sell it to domestic and foreign market, it helps the company save cost when it input internal. Weaknesses
Abrams’ business model weakness is that its divisions operate as independent companies. Furthermore, all of these profit centers, participate in an incentive compensation plan that the higher the participant is in the organizational hierarchy, the more “incentive points” he or she will receive based on division profit variance. The Abrams Company has three totally independent divisions, and the three divisions are lack of connection. The transactions between the three divisions dispute the transfer pricing.  Case Analysis and Recommendation

The Abrams case is about using profitability measures to evaluate profit centers. In EU companies it is more common to evaluate PCs with Income measures like RI and EVA. It is very difficult to find a relevant and fair capital base for the ROI measure. Abrams use book value...
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