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 genere.i
cost levels since the original quotation, the price would be $11.25, or aP
proximately 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 th*
cost ofthe Thorndike unit by 50 cents.
2. At $]^2,the Gear and Transmission Division could expect to earn an aftertal
profrt of 15 percent on its investment; this was equal to its profrt objectir-e
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 ob
tained from the Thorndike Machining Corporation at the quoted price leve1
for the foreseeable future.