However, as stated in class, "some organizations use the terms profit centre and investment centre interchangeably," this is evident by the managers of BPC's divisions continually stressing profit as a major concern. As James Brunner, Thompson's division manager stated, "The division can't very well show a profit by putting in bids that don't even cover a fair share of overhead costs, let alone give us a profit."
By applying the concept of decentralization, each division in the Birchwood Company was given authority to make decisions except for those related to overall company policy. By having this authority to make decisions, each division manager was able to invest in capital that it felt was needed to maximize overall company profit. Each division manager is evaluated on ROI, which shows how much profit was generated from the capital invested.
2.Out-of-pocket costs are the payments (usually cash or obligations to pay cash) made for resources. Out-of-pocket costs can be the same as opportunity costs, but may not be the some because of imperfect markets and changes in the decision-making environment between when a resource was acquired and when it is used. The following is a calculation of the out-of-pocket costs to Birch Paper Company on the proposed bids. BIRCH PAPER COMPANY
Per 1,000 boxes
WEST PAPER CO: Out of pocket Cost to Birch$430
EIRE PAPER, LTD: $432
Less: Southern profit ($90*40%)$36
Thompson profit ($30-$25) 5 $41
Out of pocket cost to Birch$391