CIMAPRO19-P02-1 Exam - Topic 7 Question 31 Discussion

Question

GHY has two subsidiaries. GHY-Motor manufactures car engines and GHY-Build designs and assembles cars. In the car industry it is common for manufacturers to buy parts, including engines, from other manufacturers.

GHY has granted GHY-Motor and GHY-Build full autonomy. GHY-Build is considering using an engine from another company for a new model that it is designing. GYY-Motor has a suitable engine, but it charges more than GHY-Build's preferred supplier.

Which of the following statements is correct? Select ALL that apply.

Willodean · Accepted Answer

A) GHY should consider permitting GHY-Motor to charge part of the selling price on engines sold to GHY-Build to head office. and B) Forcing GHY-Motor to grant a discount to GHY-Build could lead to dysfunctional behavior. and C) There could be significant non-financial issues associated with GHY-Build's decision to buy another engine.

Willodean · Answer

D) Parent companies should never grant subsidiaries full autonomy on matters such as intra-group sales.

Willodean · Answer

E) The threat of dysfunctional behavior is largely theoretical and managers can be trusted to maximise shareholder wealth.