Free essay of birch paper company case solution

case assignment birch paper company

It combines responsibility centers, charts of accounts, control reports, and activity centers and cost-drivers from activity-based costing. This is inconsistent with the expectation that the division must meet the market price if they wanted the business. This idea is reinforced as control imposes goal-setting and strategic planning on a company.

Evidence of problem"Palix believed that two board alternative paths were conceivable: Clust could focus purely on group buying, or it could broaden the website's offerings, with less emphasis on getting consumers a low price.

Under such arrangement, Mr. Firstly, we look at the transfer price that Thompson quoted.

Birch paper company solution pdf

Incurring the lowest costs would also enable Birch Paper Company to earn the highest profits possible. The Vice President finds it odd that the manager of the Thompson division has added the full overhead cost and the profit margins to the bid price, which could have been more competitive. The vice president of Birch should take action, but not against just this division. If Eire Papers Company got the order, it would offer to buy from Birch the outside linerboard with the special printing already on it. Moreover, critical or key variables may be monitored on a more frequent basis in order to achieve better control of the system. Also this might create problems in the future, divisions might be tempted to go for higher bids when bidding for the internal divisions order. Option 2: Cost-Based Transfer Prices If competitive prices are not available, transfer prices may be set on the basis of cost plus a profit. Kenton accept this bid? Decision criteria Below mentioned points should serve as the criteria to the decision to be made by the Vice President. Some element of negotiation between the managers involved will usually be required.

Market price should be used as it reflects how well is the division doing as compared to competitors. This model has delivered results in line with the expectations from the top management.

To overcome the above problems, the transfer pricing policy needs to be change and the following methods could be used: a Two-step pricing This method is to establish a transfer price that includes two charges: i First, for each unit sold, a charge is made that is equal to the standard variable cost of the production.

The Thompson and Southern divisions are not operating at their full capacity, their under utilization is of concern to the Vice President. It has four producing divisions and a timberland division — The Thompson division converts the paperboard output into corrugated box and prints and colors the outside surface of the box.

birch paper company diagram of the alternatives

This bid will mean no business for the Thompson and Southern divisions, their condition will only get worse with it, their fixed costs will remain fixed and it will also hurt the interests of the company as a whole.

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Case: Birch Paper Company Essay Example