Case Approach + Birch Case

Application
RSM 422 – Management and Controls
Working through a case
1 Identify the issue(s) to be addressed and resolved.

2 Identify and sort the relevant information

3 Analyze the issue

Case specific and supported arguments
Balanced discussion

4 Conclude and Provide a Recommendation

What is the main issue here?
Sorting Through the Relevant Information

Northern Thompson Southern

Division Division Division

• Designed Special • Makes boxes (print cuts • Provides materials

boxes and shape) • Corrugating paper
• Can purchase boxes • Perfected design of • Lineboard
from anywhere special box = high costs
• Received 3 bids • Bid $480 on special box.
• $480 Thompson • Running below capacity
• $432 Erie + excess inventory
• $430 West Paper
Structure your analysis
Which bid should be accepted?

Northern Birch
Division Company
 Which bid to accept ?

West Paper Corporation

Northern @ $430.
Division
Profit margin of
division = $50
 Which bid to accept ?

Need to compute the

Birch total profit for all
Company divisions under each
option.
Let’s compute
• What is the overall profit for Birch Corp from each bid?
So what do we do now?
Which bid should be accepted?

Northern Birch
Division Company

West Paper Thompson Division

Corporation Offer Offer
What should be the transfer price?
1. Variable cost
2. Full Cost
3. Full cost plus profit percentage
4. Market price
5. Negotiated price
6. Using dual pricing
How did we get here?

Why was there such a large discrepancy in the

Thompson Division Bid vs. the other bids?

What elements of the current MCS played a role in

this conflict?
Conclude and Recommend?
• Review transfer pricing policy

• Add a policy that when buying outside when another division

bids, seller gets chance to review pricing (re-bid), which also
has its risks.

• Group 2 or more divisions into one business unit