US Copiers produces full line of copiers including desktop models. Small Copier Division (SCD) produces desktop copiers and sells them in United States. Typical model has the retail price of less than $500. Integral part in copier is toner cartridge which contains black powder used to make image on paper. Toner cartridge can be utilized for about 10,000 pages and should then be replaced. Typical owner of the SCD copier buys four replacement cartridges over life of copier.
SCD purchases initial toner cartridges given with copier from Toner Division (TD) of US Copiers. TD sells consequent replacement cartridges to distributors which sell them to U.S. retail stores. Toner cartridges sell to end customer for $50. TD sells cartridges to distributors for about 70% of final retail price paid by customer. Toner Division manager argues that market price to TD of $35 (70% x $50) is price SCD must pay to TD for each toner cartridge transferred.
1. Why does US Copiers produce both copiers and toner cartridges? Why don't separate firms specialize in either copiers or toner cartridges similar to Intel specializes in producing computer chips and Gateway specializes in assembling PCs?
2. You work for president of SCD. Write down memo to boss recognizing he important issues she must raise in explaining the price SCD must pay TD for toner cartridges included in SCD copiers.
Decisions made by groups are far better to decisions made by individuals. Do you have the same opinion with previous statement? Validate your responses with suitable examples.