Greenwich Plc

Case 2

Greenwich plc

Topic: Transfer Pricing, Negotiated Transfer Prices, Divisional Autonomy

A mediator has been appointed by the head office of Greenwich plc to agree the purchasing of products X and X100. The original agreement was for the North Division to purchase X and the Essex Division to purchase X100 and the level of purchases to remain the same as the previous year.

The mediator appointed by head office has only recently joined the company and is recently qualified. He has worked for the management accountant at the North Division at another company but does not believe this helped him to get the job. Apparently this is the first time that a manager from head office has been asked to mediate in a dispute between divisions.

Initially the mediator talked to the two purchasing divisions separately. The managers at the North Division gave details of current market prices for product X and argued that Swansea was not lowering its prices in line with other suppliers. North Division also complained about the new profit targets that have been set been set by head office. Managers' were convinced that they must have the freedom to buy and sell outside the company.

The managers at the Essex Division told a similar story. They gave details of how market prices had fluctuated in the last 6 months. Their conclusion was that market prices would continue to fall and therefore the Swansea Division must reduce its prices. Again managers also argued that they must have the freedom to buy and sell outside the company.

Finally a meeting with the Swansea Division was held. The managers did not accept any of the points raised by the two purchasing divisions and argued that the current arrangement had worked well and did not need changing.

After returning to the head office the mediator wrote a short report summarising the details of the original agreement.

Details of the original agreement

The North Division purchases 3,000 units of product X...