The Northern Division, while seeking a company to manufacture new boxes it needs, has obtained bids from three companies: the West Paper Company; the Thompson Division of Northern's parent company, Birch; and the Eire Papers company. Below the total outlay costs of accepting each bid has been summarized: Buy from West Northern Division --- $430 Thompson Division --- $0 Southern Division --- $0 Paid to West $430 Total outlay costs to Birch Paper: $430 Buy from Thompson Northern Division --- $480 Outlay cost of production (60% * $280) $168 Thompson Division Outlay cost of production ($400 ? 70% * $400) $120 Southern Division Total outlay costs to Birch Paper: $288 Buy from Eire Northern Division Paid to Eire $432 Thompson Division Revenue from Eire ($30) Outlay cost of work done for Eire $25 Southern Division --- Revenue from Eire ($90) Outlay cost of work done for Eire (60% of $90) $54 Total outlay costs to Birch Paper: $391 This shows that while the bid from West Paper Company may look to be the best for the Northern division, it is in fact better for the company as a whole to buy internally from the Thompson division...
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Below the total outlay costs of accepting each bid has been summarized: Buy from West Northern Division --- $430 Thompson Division --- $0 Southern Division --- $0 Paid to West $430 Total outlay costs to Birch Paper: $430 Buy from Thompson Northern Division --- $480 Outlay cost of production (60% * $280) $168 Thompson Division Outlay cost of production ($400 ? 70% * $400) $120 Southern Division Total outlay costs to Birch Paper: $288 Buy from Eire Northern Division Paid to Eire $432 Thompson Division Revenue from Eire ($30) Outlay cost of work done for Eire $25 Southern Division --- Revenue from Eire ($90) Outlay cost of work done for Eire (60% of $90) $54 Total outlay costs to Birch Paper: $391 This shows that while the bid from West Paper Company may look to be the best for the Northern division, it is in fact better for the company as a whole to buy internally from the Thompson division...
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