Birch Paper Company

In: Business and Management

Submitted By miraz018
Words 465
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Birch Paper Company

Question 1

Which bid should Northern Division on accept that is in the best interests of Birch paper company?

Answer: Thompson division even through the bid from west paper seems at first to be the best choice.
In you calculate out the cost you find that Thompson actually has the lowest costs associated with them.

Cost involved:

✓ Costs for Thompson are a:Linearboard and corrugating medium: cost $ 400x 70% * 60% - $168 plus out of pocket: $400x 30% = 120, for a total cost of $ 288. ✓ Cost for west papers would be a total of $ 430. ✓ Cost for Eire papers would be $ 90x 60% - $ 54 (Southern) plus $ 25 (Thompson), and their supplies of $ 432 – 5 - 432 = $ 312 for a total of $ 391.

Question 2

Should Mr. Kenton accept this bid? Why or why not?

Answer: Mr. Kenton should not accept the bid from west because it isn’t in the best interest of the company, but at the same time with the transfer policy that exists, it is really up to him what is in the best interests of his division. I believe he should accept the bid from Thompson because not only will it result in the lowest cost, but also it will encourage buying from within the company.

Question 3
Should the vice president of Birch paper company take any action?
Answer: Yes. As if no orders come from top management Kenton would accept the lowest bid. The vice president of Birch should take action in order to remedy the overall problems associated with this transfer pricing policy.

Question 4

In the controversy, how, if at all, is the transfer price system dysfunctional?

Answer: To an extent – yes • The transfer price system is dysfunctional because it focuses too much on individual sectors making profit and return on investment. • Some alternative should be present which strikes a balance between both.

Medoc Company

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