Birch Paper Company Write-up
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Cameron Moore Cost Analysis and Internal Controls
Section 81.
Birch Paper Company 1.
Which bid should Mr. Kenton accept. a.
He should accept the bid from West Paper Company as it is the lowest bid and meets the market price. The $430 per thousand boxes makes sense when trying to achieve the company’s goal of maintaining profitability and competitiveness. The Thompson Division is requesting $480 per thousand which is 10% over the market price and therefore would not be competitive. 2.
Which bid is in the best interests of Birch Paper? a.
The best option for Birch is to produce everything itself and transfer the good from one division to another division. This will allow for Birch to achieve higher profits and control the quality/design of the products which can be beneficial in the long
run. 3.
Should the commercial vice-president intervene? If so, why?
a.
Yes, the vice-president should intervene in order to allow for the two divisions to agree on a transfer price that will minimize the total costs. We see in the write-up that buying from the Thompson division is probably the better option for Birch but it doesn’t account for the fixed costs associated with developing the new product. This is why an intervention from the vice-
president to negotiate a transfer price will be beneficial in long-
term agency cost minimization.
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