McMaster University COMM 4AA3 BirchPaper. - 1 2 Questions Which bid should Northern Division accept that is in the best interests of Birch Paper Company? The Thompson Division.
Questions
1 Which bid should Northern Division accept that is in the best interests of Birch Paper
Company?
The Thompson Division. Because it had the lowest cost among them.
Cost for Thompson: 60%*70%*400+30%*400
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McMaster University COMM 4AA3 BirchPaper. - 1 2 Questions Which bid should Northern Division accept that is in the best interests of Birch Paper Company? The Thompson Division.
Questions
1 Which bid should Northern Division accept that is in the best interests of Birch Paper
Company?
The Thompson Division. Because it had the lowest cost among them.
Cost for Thompson: 60%*70%*400+30%*400 = 288
Cost for West Jet: 430
Cost for Eire Papers: to Eire papers 432- (30-25)-90*(1-0.6) = 391
From Thompson 25
From Southern 90*0.6 = 54
Total 470
2 Should Mr. Kenton accept this bid? Why or why not?
No, he shouldn’t. Because for Mr. Kenton, he needed to maximize his own
profit since the division was measured as a profit center and by return on
profit. So he would be most likely to take West Jet’s offer.
3. Should the vice president of Birch Paper Company take any action?
Yes. Vice president should take action otherwise Northern would take the bid
from external. Northern division is more likely to be a revenue center and
consider the company’s whole interest regardless the division cost. It should
be encouraged to buy internal rather than the cheapest bid. At the same
time, the company could consider to switch the Thompson division to a cost
centre, and take action related to the transfer pricing policy.
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