1.

AMAX Automobiles
Division A Segment Brand Name Distribution System Production Marketing Common Component Product Innovation Flow Process Innovation Flow In this case, AMAX automobiles can be organized in such a way that different products (i.e. A,B and C) should be considered as different profit centers and the transfer of each product/process innovation should be done considering profitability in mind, where the profit center's revenues and expenses are held separate from the main company's in order to determine their profitability. Management can follow how much profit each center makes and compare their relative efficiency and profit. Profit centers should be determined on the basis of manufacturing process and the products. Division A, B and C should be considered as separate functional units that are involved in process/product innovation transactions. The profitability of these units is calculated by adding up the revenue by sales and revenue by process and product innovation transfer among the separate profit centers. For eg. If a process innovation originates in Div-A and it is transferred to Div-C, Div-A should charge a cost that adds up to its (Div-A) total revenue. Luxury Different Different Different Different Division B Up Scale Different Different Different Different Division C Mass Market Different Different Different Different

Either Externally Purchased or Internally Manufactured

Meaningful autonomy is assigned to each division.

2. INDUS Corporation
Production Synergy leads to increased profits by lowering the operating cost. The whole production design of Indus corp. can be divided into four divisions i.e. profit centers based upon the different kinds of markets that the Co. caters to. The transfer price charged to the product centers should be based on standard costs rather than actual costs. Case A- The Production Synergy being low the operation cost is more. The market being performance sensitive and not price sensitive, the Division A can be considered separately as a profit center. Case B- The production Synergy being high in this case, the operation cost is low and thus this division is relatively more profitable than other cases. Using standard cost base, Marketing cost performance from that of the manufacturing cost of performance, which is affected by changes in the level of efficiency. Case C- Lower Production Synergy leads to lower efficiency that in turn lowers the overall profitability of the profit center. This division of Indus Co. is the least profitable of all the divisions. Case D-Higher Production synergy lowers the operation cost which helps this division to deal with the price and performance sensitive market. A successful tradeoff between Revenue/Cost is easily achieved.