Hypothetical Ltd, a large-sized well established manufacturing enterprise has set up most of its service departments as artificial profit centres. The firm rents a computer for a fixed fee of `15,000...

Hypothetical Ltd, a large-sized well established manufacturing enterprise has set up most of its service departments as artificial profit centres. The firm rents a computer for a fixed fee of `15,000 per month which is charged to the manager of the computer centre. The manager, in turn, charges operating units for use of the computer at `200 per hour. One of the operating managers, has an acquaintance in a data processing service company that charges only `150 per hour for similar type of computer services that the manager rents.

The managers in the firm are free to buy services inside or outside the firm. The operating manager told the manager of the computer centre either to reduce his price to `150 per hour or he would use the outside firm.