The best bid for Birch Paper Company would be with Thompson, one of its own divisions, since it represents the lowest out of pocket cost to BPC.
Should the vice president of Birch Paper Company take any action? The responsibility structure of the Birch Paper Company and all of its divisions is an Investment Centre. In the controversy described, how, if at all, is the transfer price system dysfunctional?
The vice president of Birch should take action, but not against just this division. The transfer pricing system is dysfunctional since it is possible for each internal division to price their product above the going market price.
If needed top management is able to order the acceptance of another bid. As well, if the Northern Division chooses the Thompson division then it may avoid other costs that may be incurred from choosing an external bid.
I think he needs to take action in order to remedy the overall problems associated with this transfer pricing policy. Central managers will only want to intervene if the negative financial consequences are significant.
Kenton accept this bid? Birch Paper Company 1. Linearboard and corrugating medium: Out-of-pocket costs can be the same as opportunity costs, but may not be the some because of imperfect markets and changes in the decision-making environment between when a resource was acquired and when it is used.
The following is a calculation of the out-of-pocket costs to Birch Paper Company on the proposed bids. By having this authority to make decisions, each division manager was able to invest in capital that it felt was needed to maximize overall company profit.
The question of whether or not the vice president of Birch Paper Company should take action in this matter is a dilemma that has no outright solution, for there are pros and cons on each side.
Why or why not? Northern Division should accept the bid of the Thompson division even though the bid from West Paper seems at first to be the best choice.
If so, what specific changes do you suggest?
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. Each division manager is evaluated on ROI, which shows how much profit was generated from the capital invested.
Does this problem call for some change, or changes, in the transfer pricing policy of the overall firm? In you calculate out the cost you find that Thompson actually has the lowest costs associated with them. However, by not taking action they will loose the cost saving associated with in-sourcing to Thompson.
Out-of-pocket costs are the payments usually cash or obligations to pay cash made for resources. Birch Paper Company 1. Costs for Thompson are as follows:Transcript of Birch Paper Company Presentation. BIRCH PAPER COMPANY Background Birch was a medium-sized, partly integrated paper company.
Produced 3 products: 1. White paper 2. Kraft papers 3. Paperboard Decentralized responsibility for all decisions except those relating to overall company policy. LTd Eire Paper menawarkan harga sebesar $ untuk pembuatan kotak kepada Divisi Northern Tawaran Perusahaan West Paper Biaya yang dikeluarkan Birch Paper untuk tawaran ini adalah $ per ribuan unit.
View Essay - Case 2 Birch Paper Company p from FINANCE BU at Wilfred Laurier University. Case Birch Paper Company p Management Control Systems, 12th edition by Robert N.Download