Finance Staff Review
A review by the finance staff disclosed the following:
1. If the Thorndike Machining quotation of $10 were adjusted for the cost effect of changes in performance characteristics and the increase in general cost levels since the original quotation, the price would be $11.25, or approximately the same as that proposed by the Laundry Equipment Division. The price of $11.66 developed by the Gear and Transmission Division was in error because it failed to allow for a design elimination that would reduce the cost of the Thorndike unit by 50 cent
2. At $12, the Gear and Transmission Division could expect to earn an after tax profit of 15 percent on its investment; this was equal to its profit objective. At the $11.25 price, the division would earn about 6 percent after taxes.
3. The purchasing staff stated that, in its opinion, the transmission could be obtained from the Thorndike Machining Corporation at the quoted price level for the foreseeable foreseeable future.