12-06-2014, 11:22 AM
BIRCH PAPER COMPANY
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Working and Assessment
Judgment based on the basis of its profit and return on investment (ROI)
Concept of decentralization-both authority and responsibility
Improvement attributed to above factor
Situation
Northern and Thompson division together designed box for Northern division
Thompson division was reimbursed by Northern division for it’s designing and development
After finalization, apart from Thompson’s bid it also get offers from two outside companies
Company policy where each division
manager had full freedom and
discretion to buy from anywhere
Eire paper Company and dilemma
It would buy outside linear board from Birch with special printing (to be done by Thompson) $90 (a thousand boxes) and $30 for printing.
“Competitive market where higher costs cannot be passed on, how can we buy own supplies @10% higher than market rate.
Other Factors
Thompson division felt not received profit for their development work, hence entitled to mark up on production of box
“Cost variable for one division could be largely fixed for company as a whole”
Without orders from top management Kenton would accept the lowest bid
Transaction involved only 5% of volume of divisions involved
Should Mr. Kenton accept this bid?
Mr. Kenton should not accept the bid from West Paper because it is not in the best interest of the company, but at the same time with the transfer policy that exists, it is really up to him what is in the best interest of his division. Mr. Kenton should accept the bid from Thompson because not only will result in the lowest cost but also it will encourage buying from within the company