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Zumwald Case Solution

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Zumwald Case Analyse Taochang LIU S51023

Brief
In company Zumwald, because of the high decentralization policy, there is a dispute for product X73 mainly between two divisions—ISD and Heidelberg. ISD designed a new system which need a display, and ISD can source it internally from Heidelberg or externally. Finally ISD decided to buy displays externally which made Heidelberg livid.

Analyse 1. As ISD intended to buy from Display Technologies Plc(TDP), and Bogardus NV’s price is higher than TDP, I mainly compare Heidelberg with TDP. To make the decision, we should see the problem in the company’s level, thus I compare the contribution margin of two choice. | Internal | External | € | ISD | Heidelberg | ECD | ISD | Revenue | 340000 | 140000 | 21600 | 340000 | Fixed cost | 117000 | 55000 | 9000 | 117700 | Variable cost | 26300 | 50000 | 9000 | 26300 | Cost of component | 72000+140000 | | | 72000+100500 | Contribution margin | 101700 | 90000 | 12600 | 141200 | Contribution margin to Zumwald | 204300 | 141200 |

It is obvious that although contribution margin to ISD division is much more when sourcing externally, the contribution margin to Zumwald is more when sourcing internally.

2. TDP is a company who just entered the market and have no relationship with Zumwald before, we should concern about its quality issue. And also, after the aggressive price strategy to obtain the market share, TDP may increase the price in the future.

Solution
ISD should indeed source the displays internally from Heidelberg because it contributes much more to company.
However, the transfer price may be changeable. As contribution margin to company is more in internal source, I calculate the transfer price in no external market scenario. And I also remain the policy of ECD(20% margin) which is related to the cost of Heidelberg.

Floor: should be

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