However, if Kenton accepts the bid from Eire Papers, Eire Papers will offer to buy from Birch the outside linerboard with the special printing already on it. The profit centre that finally sells to the outside customer may not even be aware of the amount of upstream fixed costs and profit included in its internal purchase price.
Cost-Based Transfer Prices If competitive prices are not available, transfer prices may be set on the basis of cost plus a profit. As a result, of the analysis, it is very clear that the current transfer pricing strategy is dysfunctional, as optimal decisions are not being made. Similar legislation exists in the USA where the IRS appears to some observers to be trying to take matters one stage further by forcing companies to adopt transfer-pricing policies that could be held to be based on unsound accounting principles in order to ensure that profits do not get diverted outside the USA.
The Cost Basis — How to define cost.
As a result of the current dysfunctional transfer pricing policy, the division would undoubtedly go with an external supplier, even though it may not be in the best interest of BPC. However, governments are aware of this practice and may adopt similar policies to that of the anti-avoidance tax legislation.
Finally, the analysis will highlight, which transfer price strategy would result in BPC maximizing profits and why. The difference is charged to a headquarters account and eliminated when the business unit statements are consolidated.
Q4 In the controversy described, how, if at all, is the transfer price system dysfunctional. This report will highlight the issues while providing a complete analysis and recommendation for you to consider.
A sound transfer price system should be able to accomplish the following objectives: 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.
It is also important to evaluate whether these one time orders could effect the demand for the products in the long run because if such orders did effect the demand, it would be imperative, that full costs and a reasonable profit were recovered. A common way of reducing the exchange risk is by paying early or late to take advantage of likely movements in exchange rates.
Exhibit 1 It is also important to note, that the division has not been at capacity the past few months and that the selling price or market transfer prices of the products are actually higher than the going market rate. Kenton are interested in the long-run as well as short-run performances of their companies and they are competent in negotiation of transfer price.
A Market Price based A market price-based transfer price will induce goal congruence if all the conditions listed below exist: Get Access Birch Paper Company Essay Sample Birch Paper is a classic case that provides an excellent opportunity to present, analyze, and evaluate transfer pricing issues.
This setting facilitates the discussion of the advantages and disadvantages of each of these solutions as well as topics of coordination among divisions and decision-making policies.
Get Full Essay Get access to this section to get all help you need with your essay and educational issues. James Brunner will then be able to quote the bid solely on its production efficiency that is more competitive than its competitors.
The company can find out the competitive price in an outside market via the following ways: It also allows for each division to assess their performance and minimizes the potential for misallocation of resources based on defective performance measures.
Kenton, the manager of Northern Division accept this bid. Essays on native american culture Essays on native american culture diligent student essay on plagiarism days end farm horse rescue euthanasia essay sri lankan english essays for intermediate, einen essay schreiben englisch beispiel abgeltungssteuer essay soccer ball tricks environmental protection essay in malayalam racial discrimination in education essay, workplace laziness essay ville d essays dessay lucia di lammermoor reviews essay for immigration essay on pessimistic attitudes.
It is, however, profit sharing system produces several practical problems, such as there can be arguments over the way contribution is divided among the business units; arbitrarily dividing up the profits between units does not give valid information on the profitability of each unit; Manufacturing units may feel unfair as the contribution is not allocated until after the sales has been made.
However, attempts may be made to manipulate transfer prices to move funds out of a weak currency and into a stronger one. Currency fluctuations — The main problem of currency fluctuations arises when it comes to the settlement of debts.
The usual basis is standard costs. Essay of lord of the flies Essay of lord of the flies religion islam essays esala perahera essay about myself. It is, however, Transfer pricing can create a significant problem in integrated companies.
However, if Kenton accepts the bid from Eire Papers, Eire Papers will offer to buy from Birch the outside linerboard with the special printing already on it.
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 Study Solutions. Words Feb 20th, 6 Pages.
Incurring the lowest costs would also enable Birch Paper Company to earn the highest profits possible. 2. As alternatives for sourcing exists, Southern Company Case Study Essay. The three bids from Thompson division, West Paper Company and Eire Paper Company are $, $ and $ respectively.
Accepting the bid from Thompson division would be accepting the highest bid amongst all three offers (highest costs). Birch Paper Company is a medium sized, partly-integrated paper company.
It produces white and craft papers and paperboard. It has four producing divisions and a timberland division – The Thompson division converts the paperboard output into corrugated box and prints and colors the outside surface of the box.
Birch Paper Company Essay Sample. Birch Paper is a classic case that provides an excellent opportunity to present, analyze, and evaluate transfer pricing issues. Case: Birch Paper Company was a medium-sized, partly integrated paper company, producing white and kraft papers and paperboard.
A portion of its paperboard output was converted into corrugated boxes by the Thompson Division, which also printed and colored the outside surface of the boxes.Case birch paper company essay