As the costs depicted in (Exhibit One) it becomes clear that Birch Paper Company should order its bid

from the Thompson division as it has the lowest cost if all transfer prices are calculated using cost-basis assumptions. Incurring the lowest costs overall would enable Birch Paper company to maximize its profit.

Exhibit One

Thompson Division
Linerboard and Corrugating Medium: Out of Pocket Costs: Total Cost to Birch Paper Co: 168.00 120.00 288.00

Note: Linerboard and corrugating medium price calculated as: $480 * .60 * .70 Note: Out of Pocket costs were calculated as: $400 * .30

West Paper Costs

Cost quote from West Paper Co: Total Cost to Birch Paper Co: 432.00 432.00

Eire Papers, Ltd.

Cost to Birch Paper Co: Less: Southern Profit: Less: Thompson Profit: Total Cost to Birch Paper Co: 432.00 36.00 5.00 391.00