ExpertACCA · Question 30 · Performance measurement and control
Section B - Case 3: Nordic Components
Nordic Components is a multinational manufacturer. Division A (located in Country X) manufactures electric motors. Division B (located in Country Y) manufactures e-bikes and uses one motor per bike.
Division A's variable cost per motor is $50. It currently sells motors to external customers for $80. Division B currently buys identical motors from an external supplier for $75.
If Head Office forces Division A to transfer motors to Division B at marginal cost ($50) to ensure Division B remains competitive, which TWO of the following dysfunctional behaviors are likely to occur?
Section B - Case 3: Nordic Components
Nordic Components is a multinational manufacturer. Division A (located in Country X) manufactures electric motors. Division B (located in Country Y) manufactures e-bikes and uses one motor per bike.
Division A's variable cost per motor is $50. It currently sells motors to external customers for $80. Division B currently buys identical motors from an external supplier for $75.
If Head Office forces Division A to transfer motors to Division B at marginal cost ($50) to ensure Division B remains competitive, which TWO of the following dysfunctional behaviors are likely to occur?
Answer options:
Division A's manager will be demotivated as their divisional ROI will fall.
Division B will seek to buy from external suppliers instead.
Division A may prioritize external customers over Division B, leading to internal supply chain delays.
Overall corporate profitability will decrease because the transfer price is too low.
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