Birch Paper Company

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Birch Paper Company Relevant Information & Equations 1) Birch Paper Company is a producer of paper, paperboard, and corrugated boxes. The company is integrated, consisting of four separate production divisions. One of its divisions, Northern Division, asked for bids on a special corrugated box. It requested bids from one of its sister division (Thompson Division) and from two outside companies. The issue at hand is whether Northern should accept a bid from its sister division or from one of the outside companies. It should be noted that Thompsons bid is substantially higher than the bids received from the outside company. Relevant information pertaining to the three bids are provided below. 2) Thompson Division a) Bid…show more content…
That leaves Southern with a profit of $31.50 per 1000 boxes it sells to Eire papers. (35% x $90.00 = $31.50) - Thompson would print the boxes at a price of $30 per 1000 boxes with an out of pocket expense of $25 per 1000; leaving Thompson with a $5 profit per 1000 boxes. 5) Company view on costs. (1) What bid should Kenton accept? - Birch company is a decentralized company which allows for its division managers to make their own decisions regarding many aspect of their business. Kenton is the manager of the Northern Division, therefore he must make the proper decision with respect to his division. If Kenton wasn’t thinking of the company as a whole but just his division’s profit margin he would accept Eire Paper Company’s bid because their bid presents the best profit margin for Northern Division. Kenton should accept the Eire bid. (2) Which bid is in the best interest of Birch Paper Company? - The Thompson bid is in the best interest of the Birch Paper Company. The out of pocket costs are much lower for Birch when keeping the bid internal. When evaluating the out of pocket costs associated with the different bids, it’s clear Birch cuts costs drastically when accepting the Thompson bid. (3) Should the commercial vice-president intervene? If so, how? - Yes the vice-president should definitely intervene. The vice-president needs to implement new measures that encourage goal

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