Case study on birch paper company with regard to transfer pricing.

AA312 Case: Birch musical theme go with 1. Calculating only three options ground on be Thompson DivisionCosts Linearboard and corrugating medium 168(70%*400)*60% 30% of prohibited of pocket costs 120(30%*400) Total 288 tungsten PapersCosts Total 430 Eire PapersCosts Outside linear(Southern div) 54(60%*90) Printing(Thompson div) 25 Own Supplies 312(432-5-36) Total 391 As shown in the calculations above, northerly should approve the bid from Thompson piece as it has the lowest cost if only deepen prices within the companionship were calculated at costs. Incurring the lowest costs would as well enable Birch Paper Company to earn the highest cyberspace possible. 2. As alternatives for sourcing exists, Mr. Kenton should be permitted to choose the alternative that is in northern divisions own interests. The transfer price policy gives him the right to do with any insiders or outsiders at his discretion. If he is unable to run into a satisfactory pric e from the inside source which is Thompson division, he is free to buy from outside. Mr. Kenton, manager of the Northern division should non accept the bid from Thompson division. The three bids from Thompson division, West Paper Company and Eire Paper Company are $480, $430 and $432 respectively. Accepting the bid from Thompson division would be accepting the highest bid amongst all three offers (highest costs). This would prove in the lowest profits. As the Northern division is evaluated as an coronation center, it is judged independently on the basis of its profit and show on investment. Mr. Kenton should not accept the bid from Thompson division. 3. The method of utilise transfer price to decide whether to in source is optimal if the selling profit center can sell all of its products to either insiders or outsiders and if buying center can regain all of its requirements from either outside or insiders. The market price... ! The try out does not talk about why the transfer put system is dysfunctional. This is a very important part of this case. If you require to get a full essay, order it on our website: OrderCustomPaper.com

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