Case Analysis of Birch Paper Company

Topics: Corrugated fiberboard Pages: 2 (1070 words) Published: September 25, 2015
Financial Controllership
Assignment
Case Analysis
Transfer Pricing

BIRCH PAPER COMPANY

“If I were to price these boxes any lower than $480 a thousand,” said James Brunner, manager of Birch Paper Company’s Thompson Division, “I’d be countermanding my order of last month for our salesmen to stop shaving their bids and to bid full-cost quotations. I’ve been trying for weeks to improve the quality of our business, and if I turn around now and accept this job at $430 or $450 or something less than $480, I’ll be tearing down this program I’ve been working so hard to build up. 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.”

Birch Paper Company was a medium-sized, partly integrated paper company, producing white and kraft papers and paperboard. A portion of its paperboard output was converted into corrugated boxes by the Thompson Division, which also printed and colored the outside surface of the boxes. Including Thompson, the company had four producing divisions and a timberland division, which supplied part of the company’s pulp requirements.

For several years, each division had been judged independently on the basis of its profit and return on investment. Top management had been working to gain effective results from a policy of decentralizing responsibility and authority for all decisions except those relating to overall company policy. The company’s top officials believed that in the past few years the concept of decentralization had been applied successfully and that the company’s profits and competitive position definitely had improved.

The Northern Division had designed a special display box for one of tis papers in conjunction with the Thompson Division, which was equipped to make the box. Thompson’s staff for package design and development spent several months perfecting the design, production methods, and materials to be used. Because of...
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