The two plants produce plastic castings back iron as a byproduct of the manufacturing process. Two plants, Lynchburg and Archer Creek, you can use all of their by-product of the subsequent casting. The third plant, Radford, make cast-iron pipes. It generates only about 12% of the iron yield (compared with 40% to 50% for the other two plants), and could use more. Since iron is used in the return pipe plant replaces expensive cast iron, it seems that the transfer may be worth it, because in the casting plant, iron substitutes return at a lower cost mix of iron and steel scrap. The main question in the case is this: If the return of ductile iron transferred from Lynchburg and Archer Creek casting plant to pipe Radford? Economic analysis shows that there is a significant savings for the company, if the iron is transferred back. The question then becomes, at what price? It’s really a question of how to share the savings of the three plants, each of which is a cost center. In connection with this issue a number of other issues: (1) the impact on the performance of the plant, (2) the impact on the decision to terminate, modify or expand the plant, (3) the effect on the casting and pipe price, and (4) the impact on the plant morally management and performance. Currently, 3,500 tons of ductile iron return transferred from Lynchburg to Radford, because the pieces are too big to be economically remelted in Lynchburg. Only the cost of Radford pays freight. More than half of the potential profit 6,000 tons of iron, which should be transferred. The question to consider is whether this iron return, which can not be used in Lynchburg, should have the same transfer prices as iron return Lynchburg can be used. “Hide
on E. Richard Brownlee II Source: Darden School of Business 13 pages. Publication Date: July 25, 2005. Prod. #: UV1755-PDF-ENG
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