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Birch Paper

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CMA 302 – Tutorial Case Study: Final Draft Birch Paper Company 1. Background Birch Paper Company is a medium sized partly integrated company that produces Kraft papers and paperboard. There are four producing divisions and one timberland division which supplies part of the company’s pulp requirements. The divisions are - Northern Division - Southern Division - Thompson Division - Division 4 - Timberland Each division is operating independently with its own division manager. Also, each division’s performance had been judged on its profit and return on investment (ROI). The company policy of decentralizing responsibility and authority for all …show more content…

The Northern Division received 3 different bids: $480 – Thompson Division $430 – West Paper Company $432 – Eire Papers, Ltd [Calculation] Thompson Division tota Costs to Birch Paper = $288, being $400 made up of $280 for materials (linerboard and corrugating medium) and $120 for other costs. However because Thompson sources its materials from Southern division who make a $112 profit on materials, the total Cost to Birch Paper Company is materials $168 + other cost $120 = $288 West Paper Company Costs = $430 Eire Papers, Ltd Costs to Birch Paper Company = $391 that being $432 less sourcing profits from Southern Division ($90 x 40%) = $36 and Thompson Division Contribution $5 = $391 Although the West Paper Company looks at first to be the best choice, the truth is to be the Thompson Division as it has the lowest cost if we assume that all transfer prices within the company were calculated at costs. The lowest costs that associated within the company would make Birch Paper Company to earn the highest profits and revenues. [pic] Should Mr Kenton accept this bid? Why or why not? Mr Kenton has two options, 1 – To accept the lowest bid of $430 from West Paper. By doing so would result in the best interests for the Northern Division as it would gain the most profits .

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