Medoc Company Case Study
Medic Company About Medic: and Consumer Dolls were 2 of 15 Investment centers C]Top management of the Medic Company was convinced that, some warrior the other, the profit performance of the Milling Division and the consumer products division should be measured separately. This was mainly for profit reporting purposes. 0 Transfer of products from Milling to Consumer was done at actual cost C]75% of Milling Division’s investment was charged to the consumer product division in computing the latter’s ROI Distribution of Product
The products were transferred by weight and the sales of these products Clawer done by different departments In the following ratio 70% – Consumer Product dolls (Retail) 20% – Large Industrial Users 10% – Consumer Products Division to Industrial users Problems When operated at capacity, unit costs were significantly lower, so acceptance of busing sees at a low margin was preferred to operating at less than capacity.
The milling division was currently running with 2% surplus capacity. The Consumer Product
Division did not participate in any of the decisions regarding Investment in the Milliseconds. Consumer Product Division had to pay for Production Inefficiencies. Question -1 What would you recommend given the organizational structure constraints in the case? Answer:- Since Milling Division is supplying at actual cost, CAP could purchase the surplus capacity of 2%. The Consumer Product Division could Increase the volume of consumer sales by Increasing Its marketing efforts and b offering more attractive special deals.
It could also do more to obtain Industrial business at a price which, division currently incurred.
This additional volume would benefit the company even tong It reach ten average pronto margin AT Question -2 ten consumer Product Dolls. What would you recommend if there were no organizational structure constraints on your options? Answer:- If there were no organizational structure constraints, the transfer price could be revised either to market price or the price charged by the Milling Division.