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Key Issues Advanced Management

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Key Issues

1) Currently MTS is a decentralized company with three autonomous profit centers. Even though they are required in have internal sourcing, there appears to be a problem with each manager looking out for their own divisions goals such as meeting 12% ROI and not focusing on the long term growth and sustainability of the company as a whole. Since each division is concerned about operating income the internal transfer prices are overstated containing high mark ups and royalties. If the managers came together and shared information and resources for the organization as a whole they would continue to sustain operations and grow.

2) Modern Technology Services (MTS) needs to obtain the long term business selling it’s MT-10 in the European markets. MTS is facing some stiff competition, therefore it needs to adjust their internal transfer prices to be competitive in the Market place. Under the current control system it appears as though each unit is concerned with their own profitiability as opposed to the organization as a whole. The managers of MTS need to communicate and share information more freely. The lowest external market price is $560.00, therefore the managers will have to come together and determine a transfer price in order to reduce the selling price to be competitive. By using only the variable costs and removing the royalty and mark up costs between divisions, the transfer prices will be 420.00 from PD to RD, and 450.00 from RD to ID. These lower internal transfer prices will position MTS in a better position to offer their product at a lower price. The managers should come together and discuss a lower external mark up (2.5%) for the initial stages and then increase it the mark up down the road, this will help obtain the Italian contact. By decreasing the price from 750.00 to 461.00 you will decrease your variable costs on the MT-10 by 38%

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