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

AA312 Case: Birch opus go with 1. Calculating except three options ground on be Thompson DivisionCosts Linearboard and corrugating medium 168(70%*400)*60% 30% of discover of pocket costs 120(30%*400) Total 288 wolfram 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 stomach the bid from Thompson piece as it has the lowest cost if each commute prices within the confederation were calculated at costs. Incurring the lowest costs would besides enable Birch Paper Company to earn the highest electronic network possible. 2. As alternatives for sourcing exists, Mr. Kenton should be permitted to choose the alternative that is in Yankee divisions own interests. The transfer price policy gives him the right to sustain with all insiders or outsiders at his discretion. If he is unable to circumstances a satisfact ory price 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 investment center, it is judged independently on the basis of its profit and show on investment. Mr. Kenton should not accept the bid from Thompson divi! sion. 3. The method of utilise transfer price to decide whether to in source is optimal if the interchange 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 deposit system is dysfunctional. This is a very important part of this case. If you depend to get a full essay, order it on our website: OrderCustomPaper.com

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