Birch Company

The Birch Company uses decentralization in fix for the un order dividers to see effective results by anyowing them to have good liberty in termination making. However, this has presentation a problem for the inter party departments in supply bids. Each division has outside food markets for their products. Each division is evaluated based on profits and return on investments. Therefore, when the Thompson purpose budgered products to the Union Division they wanted to add the full 20% overhead to the bells so that the division could earn a profit. On the other hand, the blue Division was concerned more or less their profit and started looking at outside markets for pricing. This contribute decision to decide upon what was best for the division and what was best for the caller-up as a whole. Below is a table presentation the cost to the company for each available option. From the initial be it seems as though the Northern division would choose the westward wallpaper Company because they have the net cost. However, after considering all of the variable star costs, buy from the Thompson Division would incur the lowest cost for the Northern Division and maximize profit for the intact company. Therefore, choosing the Thompson Division would be the best option for the entire company.

If the Northern Division wants to gain profit for its division the West stem price of $430 would be ideal if the Thompson Division could match it. besides because the Thompson Division hasnt been operating at full capacity, they are charging the 20% in order to make pro fit. In order to prevent situations ! like this from occurring again I believe that the company should set up transfer prices between divisions. I gestate that the minimum transfer cost should be the cost of production. These intercompany transfers should demand the profit of the division, solitary(prenominal) external sales should be used to evaluate profit. The upper limit transfer price should be the market price because the buying division...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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