Abrams Company

In: Business and Management

Submitted By lumiradut
Words 800
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Abrams Company Abrams Company’s top management had three areas of concerns regarding the management control in its company.
a).The first concern was the disputes over the transfer pricing between three part-divisions and After Market division, especially for parts that exclusively sold to AM division. To reduce the dispute Abram’s top management to establish a fixed price for the exclusive parts, the fixed should cover the COGS and other expenses attributable to parts manufacturing plus divisional appropriate profit. The transfer price will be determined by adjusting the fixed price to resemble the price change caused by inflation. The fixed price determination must be established in conformity with all part divisions, AM division, and corporate level as the ultimate controller of company’s overall performance.
b) Product division too often treated the AM division as a captive customer.

The second focus of concern of the Abrams‘ top management was the behavior of part divisions, which captivated the AM division. Again, this is the consequence of Abrams Company organizational structure; the treat of divisions as profit centers, according to theory, will abdicate some control of top management since some decision makings authority are delegated to the lower level. This is the case in Abrams Company, where its division losing it synergy to reach companywide common goal. To overcome this problem Abrams Company needs to change its reward system, and plant managers will have a chance to raise its incentive from selling parts to AM division, and reduce the apparent problem.

c). Both the AM division and the three product divisions carry excessive inventories most of the year.
The third top management’s concern was related to the excess inventory. Both of these divisions must carry inventory to satisfy their customers. A way that they could combat this problem…...

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