Question

Sembotix Company has several divisions including a Semiconductor Division that sells semiconductors to both internal and external customers. The company’s X-ray Division uses semiconductors as a component in its final product and is evaluating whether to purchase them from the Semiconductor Division or from an external supplier. The market price for semiconductors is $100 per 100 semiconductors. Dave Bryant is the controller of the X-ray Division, and Howard Hillman is the controller of the Semiconductor Division. The following conversation took place between Dave and Howard:

 

Dave: I hear you are having problems selling semiconductors out of your division. Maybe I can help.

 

Howard: You’ve got that right. We’re producing and selling at about 90% of our capacity to outsiders. Last year we were selling 100% of capacity. Would it be possible for your division to pick up some of our excess capacity? After all, we are part of the same company.

 

Dave: What kind of price could you give me?

 

Howard: Well, you know as well as I that we are under strict profit responsibility in our divisions, so I would expect to get market price, $100 for 100 semiconductors.

 

Dave: I’m not so sure we can swing that. I was expecting a price break from a “sister” division.

 

Howard: Hey, I can only take this “sister” stuff so far. If I give you a price break, our profits will fall from last year’s levels. I don’t think I could explain that. I’m sorry, but I must remain firm—market price. After all, it’s only fair—that’s what you would have to pay from an external supplier.

 

Dave: Fair or not, I think we’ll pass. Sorry we couldn’t have helped.

 

Is Dave behaving ethically by trying to force the Semiconductor Division into a price break? Comment on Howard’s reactions.