sistem pegendalian manajemen chapter 4

7/28/2019 Sistem Pegendalian Manajemen Chapter 4

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MANAGEMENT

CONTROLLING SYSTEM

Prepared By:

Afifah Fauziyyah

Fauzan Adam

Angelina C. SinulinggaNovelda Zulmi


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BACKGROUND COMPANY

Birch Paper Company was a medium-sized, partly integratedpaper company, producing white and kraft papers andpaperboards. A portion of its paperboard output was convertedinto corrugated boxes by the Thompson division, which alsoprinted and colored the outside surface of the boxes. Including

Thompson, the company had four producing divisions and atimberland division, which supplied part of the companys pulprequirements.

For several years, each division had been judged independentlyon the basis of its profit and return on investment. Topmanagement had been working to gain effective result from a

policy of decentralizing responsibility and authority for alldecision except those relating to overall company policy. Thecompanys top officials believed that in the past few years theconcept of decentralization had been applied successfully andthat the companys profits and competitive position definitelyhad improved.


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ANALYZING THE PROBLEM

Thompson divisions Offer

Division Thompson makes the profit markup of 20% of its total expenses tosales price being 120% x $ 400 = $ 480. Not all expenditure of division is $400 expense for the company as a whole because there are profits to be

contained by Southern on Thompson.

Division Thompson ( in thousand units)

Thompsons expenditure $ 400

Profit for Southern Division

Sales price ($400 * 70%) $ 280

Cost production ($ 280 *

60%)

($ 168) ($ 112)

Total Cost $ 228


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West paper offer:

Paper Birch expenses incurred for this offer is $ 430 per

thousand units. Companies must spend money of $430 if you want to buy from West Paper.

Eira Papers, Ltd offer:

Eira Papers, Ltd (in thousand units)

Offer price $ 432

Less : profit

Southern Division

($90*40%)

$ 36

Thompson Division (

$30-$25)

$ 5 ($ 41)

Total Cost $ 391


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Eire Paper, Ltd (in thousand units)

Offer price / expense $ 432

Company Income

Sothern Division $ 90

Thompson Division $ 30 ($ 120)

Division expenditures

Southern Division (60%*90) $ 54

Thompson Division $ 25 $ 79

Total Cost $ 391

The best offer for the company as a whole is the lowest cost bid is from

the Division of Thompson bid of $ 288. Although according to WilliamKenton division is best to offer the lowest price is $ 430 from WestPaper Company. If Birch Paper Company purchased from the West for$ 430, then the company will lose if the company produces its bythemselves and it cost only $ 288.


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Mr. Kenton should not accept this bidbecause

it does not benefit the company as a whole. If BirchPaper produces internally, so much does it cost only$ 288 per thousand units box. Whereas if you buyfrom West Paper at a price of $ 430 Paper Birch,

the company will incur a loss of $ 142. But, we alsodo not recommend Kenton Thompson just received

an offer at a price of $ 480. Kenton had torenegotiate the price of the transfer as a fair pricefor the transfer at market price while Thompson's

bid above the market price.

Second Question


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Vice president of Birch Paper must takeaction to establish and improve procedures andtransfer pricing policies with each division orimprove transfer pricing policy is not clear,

although the volume of transactions is less than5% of the volume of each division involved.

Third Question


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Transfer price is a fair market price, that will be reduced coststhat will not happen for the sale of such internal transportcosts. This is different from the Thompson Division offers

which offer 10% above market price. Northern DivisionNaturally be hesitant to accept the offer. Can be seen in thetransfer pricing system has failed and not working properly.

Division Manager Thompson charge 20% of fixed overhead

costs and profit to the price transfer to the Northern Divisionbut for the last few months, the division failed to operate to thefullest. Thompson Division should provide bid price below $

480 due to the charge capacity and can offer cover theoverhead costs. But this division even put a high price for theoffer. It is caused managers who want to pursue profit for the

division.

Fourth Question


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Changes that we can do in the transfer

pricing system Birch Paper Company

Vice President Northern Division should not beforced to accept the offer at the price of $ 480

Northern Division has information on the price ofsimilar products outside

Transfer price should be set with the consent of all

the divisions and companies


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CONCLUSION

Northern Division of Birch Paper Company should accept the offer of the

Division of Thompson as a bid to lower costs and encourage internal

purchases. In terms of transfer pricing, the Division must reviseThompson. Transfer prices that are too high cause Northern Division

products will not be able to compete in the market. Transfer pricing

system in the company is not working properly. Transfer price is at fair

market prices.

sistem pegendalian manajemen chapter 4

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