BIRCH PAPER COMPANY

DHARMA PUTRANTO DENDY FIKOSASONO JEMY YAPOLA ROBBY S IRAWAN YULI ROSIANA

FOUR PRODUCTION DIVISION

BIRCH PAPER COMPANY

NORTHERN DIVISION

THOMPSON DIVISION

SOUTHERN DIVISION

X DIVISION

About Birch Paper Company

Was a medium-sized company which partly an

integrated paper company Producing white and craft papers and paperboard and converted into corrugated boxes The corrugated boxes produce by the Thompson Division which also printed and colored the outside surface of the boxes Had 4 (four) producing divisions

About Birch Paper Company

- Northern Division: designed a special display box - Thompson Division: package design, perfecting the

design, production methods

- Southern

Division: produce linerboard and corrugating medium and sometimes sell to Thompson division

About Birch Paper Company

For several years, each division had been judged

independently on the basis of its profit and return on investment The companys top management believed that the companys profits and competitive position definitely had improved Most of Thompsons sales were made to outside customers

The issue
THE NORTHERN DIVISION RECEIVED BIDS ON THE BOXES OF $480 FROM THOMPSON DIVISION, $430 FROM WEST PAPER COMPANY AND $432 FROM EIRE PAPERS, LTD. WHICH BID SHOULD NORTHERN DIVISION ACCEPT TO MINIMIZE THE COST AND MAXIMIZE THE PROFIT IN THE BEST INTEREST OF BIRCH PAPER COMPANY ? WEST PAPER COMPANY $ 430 EIRE PAPER COMPANY $ 432 CONTRIBUTION OF PROFIT FROM SOUTHERN $ 90 X 40% = $ 36 CONTRIBUTION OF PROFIT FROM THOMPSON $ 30 - $25 = $ 5 TOTAL COST $ 391

THE ISSUE
Thompson Division $ 480 Contribution of profit from Southern $ 400 x 70% x 40% = $112 Contribution of profit from Thompson $ 480 - $ 400 = $ 80 Total Cost $ 288 So Northern Division should accept bids on the boxes of Thompson Division, because it minimizes cost of the Birch Paper Company

The issue
SHOULD MR. KENTON ACCEPT THIS BID ? WHY OR WHY NOT ? MR. WILLIAM KENTON AS A MANAGER OF NORTHERN DIVISION SHOULD NOT TO ACCEPT THE BID, BECAUSE:
1.BIRCH PAPER COMPANY GAVE A DECENTRALIZING RESPONSIBILITY

AND AUTHORITY FOR EACH DIVISION BASED ON PROFIT AND RETURN ON INVESTMENT. MR. KENTON SHOULD NOT ACCEPT THE BID FROM THOMPSON DIVISION AND CHOSE EITHER EIRES OR WEST PAPER BIDS WHICH OFFERED LOWER PRICE COST ON THE INTEREST OF NORTHERN DIVISION
2.SINCE EIRE BOUGHT THE MATERIALS FROM SOUTHERN DIVISION

WHICH MEANS THAT EIRE GIVES A CONTRIBUTION TO BIRCH PAPER COMPANY AS A WHOLE. SOUTHERN DIVISION COULD BE MORE OPTIMALIZING ITS CAPACITY AND REDUCED ITS EXCESS INVENTORY BY TAKING THE ORDER FROM EIRE PAPER COMPANY.

THE ISSUE
Should the vice president of Birch Paper Company take any action ? The vice president of Birch Paper should take some action in order to decide the best decision for the companys benefit overall. If the vice president did not take any action, Northern division would most likely to choose Eire Paper to provide the order and it would cause a more inefficiency in Thompson division

THE ISSUE
In the controversy described, how, if at all, is the transfer price system dysfunctional ? Does this problem call for some change, or changes, in the transfer pricing policy of the overall firm ? If so, what specific changes do you suggest ? The transfer pricing become dysfunctional because did not accommodate the issue with the market price. The profit-center transfer pricing should be adjusted based on the cost-based transfer pricing.

Current Condition of BP Co.

Detail of the calculation:

THOMPSON DIVISION: Thompsons selling price to Northern Division = $ 480 20% profit margin (profit margin: ($ 480 - $ 400)/ $ 400 = 20%) Thompsons out-of-pocket costs = $ 400 Southerns selling price to Thompson (transfer pricing: 70% x $ 400) = $ 280 ----------- Other overhead costs (outsider suppliers) = $ 120

SOUTHERN DIVISION : Southerns out-of-pocket costs (60% x $ 280) Southerns profit ($ 280 - $ 168 = $ 112)

= $ 168 = $ 112 67% ($ 112/$ 168)

Recommendation:

- Southern division should reduce the percentage of

its profit lower than 67 %

- Thompson divisions profit cant be lower because

the overhead costs and 67 % of margin should be adjusted to follow the market price in the end

Recommendation:
Market Price approximately

= $ 430

THOMPSON DIVISION: Thompsons selling price to Northern Division = $ 430 20% profit margin Thompsons out-of-pocket costs = $ 358.33

(new out-of-pocket costs: $ 430 / 1.2 = $ 358.33)

Other overhead costs (outsider suppliers) = $ 120 ----------- -

New Southerns selling price to Thompson Division= $ 238.33

SOUTHERN DIVISION : Southerns out-of-pocket costs (60% x $ 280) New Southerns profit / $ 168) ($ 238.33 - $ 168 = $ 70.33)

= $ 168 = $ 70.33 42% ($ 70.33

Recommendation:
- From the calculation, there is a reduction profit margin in Southern division from 67 % to 42 % so the price could meet with the market price - Top-level management should develop an arbitration committee to provide the best solution based on profit sharing and profit mechanism for the company as a whole without affecting the decentralization that has been well established

Recommendation:
- Profit sharing itself is dealing with the share of profit

in each division so that each division could well operate.

- Profit mechanism more dealing with efficiency and

effectiveness on each division such as excess inventory, production and operation capacity.

Describe overall framework of mgmt control.How does it relate to strategic planning & operations control
There are five main sets of issues that need to be addressed in developing a framework for managing organizational performance that are represented as a set of questions: 1.What are the key objectives that are central to the organizations overall future Success, and how does it go about evaluating its achievement for each of these objectives? This is designed to explore and elucidate organizational aims and objectives, and the mechanisms that have been put in place to measure and monitor goal attainment.

2. What strategies and plans has the organization adopted and what are the processes and activities that it has decided will be required for it to successfully implement these? How does it assess and measure the performance of these activities? This is designed to explore and document the connections the organization has made between its strategic intent objectives, and the means by which it hopes to realize them.

3. What level of performance does the organization need to achieve in each of the areas defined in the above two questions, and how does it go about setting appropriate performance targets for them?

This raises questions of both effectiveness (to what extent are objectives expected to be achieved in a given time-frame) and efficiency (what level of resourcing is thought necessary to allow such achievement

4. What rewards will managers and other employees gain by achieving these performance targets or, conversely, what penalties will they suffer by failing to achieve them? This seeks to examine the consequences that follow from the achievement or the failure to achieve the performance targets which have been set. Motivation and incentives are the main focus.

5.What are the information flows: feedback and feed-forward loops that are necessary to enable the organization to learn from its experience, and to adapt its current behavior in the light of that experience?

This deals with not only the immediate corrective action to rectify the perceived problem, but also for double-loop learning to take place to improve the system in such a way that errors do not occur again in the same way. This also involves less formal uses of information

Zero-based budgeting requires the budget request be re-evaluated thoroughly, starting from the zero-base In zero-based budgeting, every line item of the budget must be approved, rather than only changes During the review process, no reference is made to the previous level of expenditure. This process is independent on whether the total budget or specific line items are increasing or decreasing.

Cash flow available for distribution among all the securities holders of an organization. They include equity holders, debt holders, preferred stock holders, convertible security Holders, and so on. Free cash flow is actually a measure of financial performance calculated as operating Cash flow minus capital expenditures FCF = EBIT (1-tax rate) + depreciation & amortization - change in net Working capital - capital expenditure

A financial audit, or more accurately, an audit of financial statements, is the verification of the financial statements of a legal entity, with a view to express an audit opinion. Financial audits are typically performed by firms of practicing accountants who are experts in financial reporting. The audit opinion is intended to provide reasonable assurance that the financial statements are presented fairly, in all material respects, and/or give a true and fair view in accordance with the financial reporting framework. Financial audits exist to add credibility to the implied assertion by an organization's management that its financial statements fairly represent the organization's position and performance to the firm's stakeholders.

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations Internal auditing is a catalyst for improving an organizations effectiveness and efficiency by providing insight and recommendations based on analyses and assessments of data and business processes. The scope of internal auditing within an organization is broad and may involve topics such as The efficacy of operations, the reliability of financial reporting, deterring and investigating fraud, Safeguarding assets, and Compliance with laws and regulations.

nal audit is one of the avail to the top management for ring continuous improvement for better performance. your comments.

Internal auditing is an independent, objective assurance and consu ctivity designed to add value and improve an organisations operations. It helps organisation accomplish its objectives by bringing a systema disciplined approach to evaluate and improve the effectiveness of risk managemen control and governance processes.

nternal Auditor can make: An objective assessment of operations and share ideas for best practices. Provide guidance for improving controls, processes and procedures, performanc and risk management.

Role in risk management

Internal auditing professional standards require the function to monitor and evaluate the effectiveness of the organization's Risk management processes. Risk management relates to how an organization sets objectives, then identifies, analyzes, and responds to those risks that could potentially impact its ability to realize its objectives.

Under the COSO enterprise risk management (ERM) Framework, risks fall under strategic, operational, financial reporting, and legal/regulatory categories. Management performs risk assessment activities as part of the ordinary course of business in each of these categories. Examples include: strategic planning, marketing planning, capital planning, budgeting . Corporate legal counsel often prepares comprehensive assessments of the current and potential litigation a company faces. Internal auditors may evaluate each of these activities, or focus on the processes used by management to report and monitor the risks identified In larger organizations, major strategic initiatives are implemented to achieve objectives and drive changes

Role in corporate governance

Internal auditing activity as it relates to corporate governance is generally informal, accomplished primarily through participation in meetings and discussions with members of the Board of Directors. Corporate governance is a combination of processes and organizational structures implemented by the Board of Directors to inform, direct, manage, and monitor the organization's resources, strategies and policies towards the achievement of the organizations objectives. A primary focus area of internal auditing as it relates to corporate governance is helping the Audit Committee of the Board of Directors (or equivalent) perform its responsibilities effectively.

do you undrstand by balance score card .Explain with e o you implement balance scorecard
Balanced Scorecard Basics The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals

The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system. The new balanced scorecard transforms an organizations strategic plan from an attractive but passive document into the "marching orders" for the organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies

The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.

The Learning & Growth Perspective The Business Process Perspective The Customer Perspective

End

THANK YOU