Currency fluctuations — The main problem of currency fluctuations arises when it comes to the settlement of debts.
James Brunner will then be able to quote the bid solely on its production efficiency that is more competitive than its competitors.
The difference is charged to a headquarters account and eliminated when the business unit statements are consolidated. Our group thinks that the development work that Thompson has done and the bid that Northern Division called for should be considered as two separate issues or transactions.
A Market Price based A market price-based transfer price will induce goal congruence if all the conditions listed below exist: Present situation Thompson division had provided services including package design and development on a special display box to Northern Division.
If so, what specific changes do you suggest? The Cost Basis — How to define cost? From the above analysis, it is more favorable for Kenton accepts the bid from Eire Papers than West Papers. Even if the final profit centre were aware of these costs and profits, it might be reluctant to reduce its own profits to optimize company profit.
In the case of limited markets, the transfer price that best satisfies the requirement of a profit centre system is the Competitive price. Exhibit 1 The Division is also running below capacity and has excess inventory, which is the first indication that the prevailing market rate may not always be the optimal price to charge for internal transfers.
Because the Southern Division is operating below capacity and has excess inventory, it could establish its transfer prices at its variable costs, to ensure that it at least sells its excess inventory. Competitive prices measure the contribution of each profit centre to the total company profits.
If Thompson Division got the order, it would buy its linerboard and corrugating medium from the Southern Division of Birch. Because each Birch Division manager is encouraged to go with the most cost effective supplier, Mr. James Brunner with regard to the entitlement of good markup on production for the developmental work done for Northern Division.
If all of the above conditions are present, a transfer price system based on market prices would induce goal congruent decisions, with no need for central administration.
Two decisions must be made in a cost-based transfer price system: CONCLUSION Besides the above proposal, our group also suggests that while making the business decision, the management should look into the following transfer pricing factors and considerations: One of the principal challenges in operating a decentralized system is to devise a satisfactory method of accounting for the transfer of goods and services from one profit center to another in companies that have a significant number of these transactions.
The Profit Markup The simplest and most wisely used based to calculate the profit markup is a percentage of cost, alternatively, the company can also use the percentage of investment based.
Q4 In the controversy described, how, if at all, is the transfer price system dysfunctional? It becomes evident that when the transfer price is at the market price, the Southern and Thompson Divisions would have benefited the most, however, it would have been at the cost of the Northern Division.
After reviewing the Birch paper company case we feel that from the company perspective is to accept the Thompson bid. Should the vice president of Birch Paper Company take any action? The situation may be complicated by capacity constraints and limiting factors. A sound transfer price system should be able to accomplish the following objectives: Under the agreement between these two divisions, Thompson Division was reimbursed by the Northern Division for the cost of its design and development work, Thompson Division received no profit on that.Solution Case Birch Paper Company.
ACCT Birch Paper Company. Birch Paper Company.
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Birch Paper Company is a medium sized, partly integrated paper company which contained four production divisions, including Thompson division, and a timberland division.
Each division is encouraged to base its transfer price on the current market price and is judged independently on the basis of its profit and return on investments. Birch Paper Company Case Study - Free download as Powerpoint Presentation .ppt), PDF File .pdf), Text File .txt) or view presentation slides online.
Case Study on Birch Paper Company/5(17).
Birch Paper Company is a medium-sized, vertically integrated paper company, producing white and kraft papers and paperboard. It has four producing divisions and a timberland division which supplied part of the companyâ€™s pulp requirement; each division is operating independently headed by its respective division managers.
Birch Paper Company Case Solution.
The functional control of the Thompson department has actually been provided to James Brunner andso he chooses the transfer ultimedescente.com this particular case Mr.
Kenton need to accept the quote of theThompson Division. Case Study – Birch Paper Company Company Background Birch Paper Company was a medium-sized, partly integrated paper company.
It had four producing divisions, namely Northern Division, Thompson Division, Southern Division & one unnamed Division and a Timberland Division.Download