U.S. Pump is a multidivisional firm that manufactures and installs chemical piping and pump systems. The valve division makes a single standardized valve. The valve division and the installation division are currently involved in a transfer pricing dispute. Last year, half of the valve division's output was sold to the installation division for $40 and the remaining half was sold to outsiders for $60. The existing transfer price has been set at $40 per pump through a process of negotiation between the two divisions, with the involvement of senior management. The installation division has received a bid from an outside valve manufacturer to supply it with an equivalent valve for $35 each.
Analyze the situation and recommend a course of action. What should installation division managers do? What should Valve division managers do? What should U.S. Pump's senior managers do? The numbers came out scrambled, but if you don't have the book I can upload the problem in a Word document.