ABSTRACT
The chairman could have commissioned a study that would try first to establish both the corporate and divisional objectives and constraints; secondly, trace the behaviour of the market over time in terms of overall sales and prices. Thirdly, build a model to determine the consequences to the divisions and to the company of alternative procedures and decisions. When price negotiations with a third party are heavily dependent on disclosure of detailed costs, a formula for allocating central overheads has to be agreed by those concerned. Abe’s division essentially produces one product; some of the output is supplied as an input to Bob’s division and the balance is sold in the open market.
