Question

Your response should be 2-3 paragraphs and incorporate at least one outside reference. You will NOT be able to see others responses until you make the initial posting. You are then encouraged to engage in the discussion as frequently as possible.

Sembotix Company has several divisions including a Semiconductor Division that sells semiconductors to both internal and external customers. The company's X-ray Division uses semiconductors as a component in its final product and is evaluating whether to purchase them from the Semiconductor Division or from an external supplier. The market price for semiconductors is $100 per 100 semiconductors. Dave Bryant is the controller of the X-ray Division, and Howard Hillman is the controller of the Semiconductor Division. The following conversation took place between Dave and Howard:
Dave:

I hear you are having problems selling semiconductors out of your division. Maybe I can help.
Howard:

You've got that right. We're producing and selling at about 90% of our capacity to outsiders. Last year we were selling 100% of capacity. Would it be possible for your division to pick up some of our excess capacity? After all, we are part of the same company.
Dave:

What kind of price could you give me?
Howard:

Well, you know as well as I that we are under strict profit responsibility in our divisions, so I would expect to get market price, $100 for 100 semiconductors.
Dave:

I'm not so sure we can swing that. I was expecting a price break from a “sister” division.
Howard:

Hey, I can only take this “sister” stuff so far. If I give you a price break, our profits will fall from last year's levels. I don't think I could explain that. I'm sorry, but I must remain firm—market price. After all, it's only fair—that's what you would have to pay from an external supplier.
Dave:

Fair or not, I think we'll pass. Sorry we couldn't have helped.

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Is Dave behaving ethically by trying to force the Semiconductor Division into a price break? Comment on Howard's reactions.

Answer 1

Case Analysis:
- The company's X-ray Division uses semiconductors as a component in its final product and is evaluating whether to purchase them from the Semiconductor Division or from an external supplier.
- The market price for semiconductors is $100 per 100 semiconductors.
- Last year, Howard was producing & selling semi conductor at 100% capacity.
-This year capacity reduced to 90%. (10% downfall in capacity of selling to outsider which is an issue for a company)
- Howard expect Market price i.e. $100 for 100 semiconductors even from sister concern which is not feasible
- In case Howard gives price break, profitability would fall.

Question: Is Dave behaving ethically by trying to force the Semiconductor Division into a price break? Comment on Howard's reactions.

Answer:
- As per my understanding after going through the passage, Dave's behaviour is ethical because even though both divisions belongs to one but profitability, responsibility, reporting, financials are different. As a business, every responsible will try to reduce the input price. This is a normal buying psychology where Dave is trying reduce the input price. Though Howard is selling at $100 for 100 semiconductors, but his capacity has reduced to 90% which is troublesome.

   If a company that is not working at it's full capacity, each expense, storage of goods becomes huge liability as warehousing cost, maintenance cost and other costa re added. So it is always better to sell at little low profit rather than expecting normal market price.