Abrams management expressed three main concerns within their firm. First, there are consistent disputes over the transfer prices of parts. The case mentioned that previously, there were virtually no disputes when the original OEM price was adjusted upward for inflation. The problems began when the parts being transferred were strictly AM division parts (Anthony & Govindarajan, 2007, p.228). It seems that this problem is occurring because the company is treating the AM Division as something separate. The solution to this problem is simple; treat the parts as they would in the current OEM outside market to avoid the disputes. The management needs to determine at what price the produce should be transferred through a transfer price decision (p.231).
Next, the Abrams management also feels the product divisions tended to treat the AM Marketing Division as a “captive customer (Anthony & Govindarajan, 2007, p.228).” Management does not allow the AM division to sell a competitors product. This doesn’t allow the division to compete for the customer effectively because they cannot purchase parts outside (p.229). It seems like while the management is concerned about the affect that selling a competitor’s product may have on the image of the company; it seems wise to allow them to expand the business and potential sales. One of the difficulties with profit centers is that some units may be in competition with one another (p.187). The management needs to develop a way to increase