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Rikyu Limited is a multinational company with headquarters in AUS and two subsidiaries (Japan and NZ). This company manufactures high priced ceramic...
Rikyu Limited is a multinational company with headquarters in AUS and two subsidiaries (Japan and NZ). This company manufactures high priced ceramic equipment for use in tea ceremony. The main input is raw clay. Managers are allowed to bid separately and compete against each other.
The clay can be obtained on the local spot price for 206$ per ton, or from the parent company's plant in Sydney, Australia for $301 per ton. This will be included in subsidiaries' books. However, in parent's book, the raw clay purchased is shown with price 199$ not 301$.
Conversion costs: 90$ per ton in Japan and 32$ per ton in NZ. The winning bid is Japan's price with a bid sale of 619$ per ton of clay (Japan intends to buy clay from local market) and The loser is NZ with bid price of 865$ (it intends to buy clay from its parent).
Evaluate whose bid was in Rikyu's best interest.
