Rambo Company has two divisions, the Semiconductor Division and the X-ray Division. The X-ray Division may purchase semiconductors from the…

Rambo Company has two divisions, the Semiconductor Division and the X-ray Division.  The X-ray Division may purchase semiconductors from the Semiconductor Division or from outside suppliers.  The Semiconductor Division sells semiconductor products both internally and externally.  The market price for semiconductor products is $100 per 100 semiconductors.  Dave Bryand is the controller for the X-ray Division, and Howard Hillman is the controller of the Semiconductor Division.  Tee following conversation took place between Dave and Howard:

Dave: I hear you are having problems selling semiconductors out of your division.  Maybe I can help.

Howard: You’ve got that right.  We’re producing and selling at about 90% of our capacity to outsiders.  Last year we were selling 100% capacity.  Would it be possible for your division to pick up some of our excess capacity?  After all, we are part of the same company.

Dave: What kind of price could you give me?

Howard: Well, you know as well as I that we are under strict profit responsibility in our divisions, so I would expect to get market price, $100 for 100 semiconductors.

Dave: I’m not so sure we can swing that, I was expecting a price break from a ‘sister’ division.

Howard: Hey, I can only take this ‘sister’ stuff so far.  If I give you a price break, our profits will fall from lat year’s levels.  I don’t think I could explain that.  I’m sorry, but I must remain firm-market price.  After all, it’s only fair-that’s what you would have to pay from an external supplier.

Dave: Fair or not, I think we’ll pass.  Sorry we couldn’t have helped.

Regarding the conversation between Dave and Howard above, is there a problem?  Should Howard have ‘cut’ a deal to increase capacity?  Should Dave have purchased anyway?  Who, if anyone, was hurt in this situation?  Is there an ethical issue here?  How would your respond to Dave if you were Howard, and how would you respond to Howard if you were Dave?

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