BIRCH PAPER COMPANY

By
Ankit Goyal
Roll no- 69
1) The company should adopt a policy of transferring the goods to other departments at the
prevailing market price and use real information from outside the company to set transfer prices
for inter-department sales. The ongoing deal transfer prices should be set on the ongoing market
prices and thus solves the problems of northern division. This would help to analyze the
performance of different departments and measure their efficiency of production and cost. This
will help birch to solve the internal issues of overcharging and encourage inter-department sales
thus increasing company’s overall profit.

2) The company can set a profit margin for each of the department which could be fixed. The
margins for each transaction should be determined by a new finance department this would force
the departments to increase their production and reduce cost further by bringing efficiency. One
option would be 20% margin for the southern department so the cost for Thompson would be
around ($168*120%) $212 and they could be given a margin of 30% since they work hard for
new designs and development and that would encourage them to come with new ideas and
innovation which could be beneficial for the company in the future. So the price at which the
northern department will receive the goods would be {(212+120)*130%} $ 431 and this price is
competitive against the bids received from Eire and West Paper Company. So there will be no
problem for the northern department to buy the goods internally.

3) The company can go with the same pricing as quoted by different departments and force the
northern department to buy the goods internally. As we know the Thompson department has
created designs and concept which are new to the industry and not the standard ones so they will
have demand in the market which will make the products saleable at a higher price also.
Thompson department command the margins they are expecting out of their sales and they
deserve it. The southern department may be forced to negotiate their price a bit lower because
their margins are too high but if their product quality and standards are higher than the
competitors then they also command a price for their efforts which would further encourage
them in maintenance of cost and quality.