Kenton should accept the bid from Thompson because not only will it result in the lowest cost, but it will encourage buying from within his own company. It also printed and colored the outside surface of the boxes. This report will highlight the issues while providing a complete analysis and recommendation for you to consider. Sasha is young, hard worker, and recent hire with no exceeding the expectations in the company, but recently he has improved significantly. Eire Papers offered to buy from Birch the outside linerboard with the special printing already on it, but it would supply its own inside liner and corrugating medium. Rule of Thumb: The greater the no.
Does this problem call for some change, or changes, in the transfer pricing policy of the overall firm? Brunner, the manager of Thompson Division felt that he should be entitled to a good mark up on the production as Thompson had done the design and development work for Northern Division without any profit, he add the full 20% overhead and profit charge to his out-of-pocket costs. As well, the market rate transfer prices are also not reflecting whether the divisions re at capacity or have excess inventory, which significantly affects the transfer prices. This case study analysis discusses the types of pricing policies which division of Birch Paper Company employs and how this lack of a uniform policy affects the company itself. The company is integrated, consisting of four separate production divisions. There are case papers which include: c Scope and Limitation of the Study This includes the coverage of the study, the participants, the issues and constraints that have direct bearing on the case study.
The following report will evaluate different types of policies and will make a recommendation as to the most effective for Birch Paper Company. We always believe that ensuring good quality and service is the key to maintain friendly relationship with old clients and create new clients. However, it would be possible for top management to order the acceptance of another bid if the situation warranted such action. As if no orders come from top management Kenton would accept the lowest bid. He has an obligation to make the best business decisions for his division, which means taking the lowest legitimate and reasonable bid. This is because if Northern Division does not award contracts to the low bidder, for instance Eire Papers whose bid is reasonable low, it will soon find that either no one bids or that the bids are of questionable value in future. James Brunner felt that he is entitled to a good mark up for the work done.
It is, however, Transfer pricing can create a significant problem in integrated companies. Underwriting Meaning The word 'underwriting' was coined by British Merchants who used to write their names at the end of marine insurance document wherein each agreed to assure joint risk. About product and suppliers: Alibaba. The commercial vice president is facing this unusual situation, where he has to decide whether to intervene into, and if yes what should he do and how? Which bid is in the best interest of Birch Paper Company? Case objective: The objective of this case is to cover financial statement analysis and cash flow analysis, with a particular emphasis on liquidity and net working capital. Early in the year, its Northern Division designed a special retail display box in conjunction with the Thompson Division, which was equipped to make the box. Enhancement of the system is required because responsibility accounting system brings discipline to planning and control tasks.
It is competing in a highly competing market and buying at this price will mean compromising heavily on its profits. Different situations will demand different transfer pricing policies. By rejecting the Thompson division bid, Mr. The company involved in joint investment, acquisitions, and ventures. Number 1 would be the most responsible, and Number 6 would be the least responsible.
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. As alternatives for sourcing exists, Mr. Rejecting the contract and choosing an alternate vendor would be dysfunctional to the company as a whole given that both divisions have available capacity. This model has delivered results in line with the expectations from the top management. At first glance it would seem that the bid that should be accepted is the one made by Eire Paper Company because it was the lowest bid and had more room for profitability. This might result in the highest profits for Northern division but it is not in the best interests of Birch Paper Company.
Kenton should accept the lowest bid from their choice of suppliers. Managers are graded on division profits, not company wide. The vice president explored further the cost structures of the various divisions. Also, this decision will bring some business to the ailing Thompson and Southern divisions. If the Southern division abandons its market based transfer pricing, it may lead to increased efficiency, lower inventory costs and most importantly, increased revenue.
Biaya untuk lineboard dan corrugating medium adalah sebesar 60% dari harga jual. This case takes us into Rendell Company which is currently having problems between the corporate controller and the divisional controller. Brunner went on to say that, having done the developmental work on the box and having received no profit on that work, he felt entitled to a good markup on the production of the box itself. Words: 268 - Pages: 2. There were not many people in the courtroom really just the family of the person that was murdered and I think the reason that it was that way is because the shooting was gang related. This means little time for maintenance or down time.
Also, the Southern division is operating at the market price although it is also facing the similar problem of under utilization of its full capacity. Tawaran manakah yang harus diterima oleh Divisi Northen yang paling memenuhi kepentingan Birch Paper Company? They also convert paperboard into corrugated boxes with printing and colour on the outside surface. In those eight years Coors declined by 14. One thing I noticed was that another state attorney, I think, followed every witness out that testified against Wilkers. Early in the year, its Northern Division designed a special retail display box in conjunction with the Thompson Division, which was equipped to make the box. The Company would like to keep the decentralized structure in place but is now observing conflict between its divisions with regards to transfer pricing. He followed this with numerous engineering and management positions in several pulp and paper mills in the Province of Québec, along with a senior management training program at Western University in London, Ontario.
The deal will bring some business to both the Thompson and Southern divisions of the Birch company. It requested bids from one of its sister division Thompson Division and from two outside companies. Situation: Thompson division designed a box for Northern division. It is in the interests of the company that all the divisions remain healthy, they are given enough boost to remain competitive in the market. However, if Northern gets boxes from Thompson, operating capacity of Thompson will be maximized and excess inventory of Southern will be utilized. La División Norte Colabora con Thompson y se encarga del diseño de la neva caja. The difference is charged to a headquarters account and eliminated when the business unit statements are consolidated.