The starting point of the analysis it to find out what is best for the single divisions and what is best for Zumwald AG as a whole instead.
In order to do so, I examined the cost structure of the various divisions and made a contribution analysis under the two possible scenarios: 1) ISD outsourcing from Display Technologies Plc; 2) ISD sourcing internally from Heidelberg.
As shown below in exhibits 1, 2 & 3, Zumwald AG clearly benefits from internal sourcing. The difference is €63100 of lost contribution in case of outsourcing. Heidelberg’s and ECD’s orders would be lost under this scenario. On the other hand, ISD is better off with the outsourcing option, achieving €39500 in savings.

Alternatively, the same outcome can be found analyzing the cash outflows for Zumwald AG under the two viable options (see exhibit 4 below). If sourcing internally, the cash outflow is given by the combined VC for Heidelberg and ECD, which amount to €37400. Conversely, if outsourcing, the cash outflow is simply given by the price offered by the supplier.
Any transfer price greater than €37400 would lead to a positive contribution for Heidelberg and/or ECD. Different total contribution allocations would depend by the internal transfer prices for the divisions.
Therefore, Mr. Fettinger must deal with the dispute and be sure that the interests of the various managers are aligned towards the common wellbeing of the firm. Given the current organizational structure and the responsibilities and goals assigned to the managers, it would be hard to convince Mr. Bauer without changing his relative duties, especially because the product in question represents only 5% of the total turnover.
Two possible solutions would be: 1) Heidelberg prices internally its display at the best market price, but it is not then held accountable for its profits; 2) Heidelberg prices internally