Strategies for Production and Operations Management

Question: Discuss about the Strategies for Production and Operations Management. Answer: The minimum transfer price of the division has been computed by adding the variable cost of production and the lost contribution. The variable cost, for this particular case, involves the direct materials and direct labour. With the help of transfer pricing rule, an organisation is able to make suitable decisions to transfer goods internally or purchase from outside suppliers (Sahay 2013). Hence, the minimum transfer price, which would be acceptable to the cl4eaning and scrapping division of the organisation, is $65. From the perspective of the divisional manager, the minimum transfer price is the most suitable one to transfer to the processing division of the organisation. This is because the maximum transfer price from the cleaning and processing division has been given as $77. In the words of Shunko, Debo and Gavirneni (2014), if the maximum transfer price is greater compared to the minimum transfer price of a product, it is better to transfer the same within the internal process. The provided case also resembles the same scenario, which necessitates the internal transfer of Cruden to the processing division. Hence, minimum transfer price needs to be highly preferred, as it would help in boosting the revenue and overall financial performance of the organisation, through which the efficacy of the manager would be judged. References: Sahay, S.A., 2013. Financial control and transfer pricing. InEncyclopedia of Finance(pp. 783-794). Springer US. Shunko, M., Debo, L. and Gavirneni, S., 2014. Transfer pricing and sourcing strategies for multinational firms.Production and Operations Management, 23(12), pp.2043-2057.