Kế toán, kiểm toán - Chapter 12: Financial performance reports and transfer pricing

Chapter 12Financial performance reports and transfer pricing1DecentralisationBenefitsManagers of sub-units have better local information about markets and operations to enable them to manage their areas more effectivelyProvides managerial training for future higher-level managersMay lead to greater motivation and job satisfaction for sub-unit managersAllows corporate managers more time for strategic issuesAllows the organisation to react more quickly to opportunities and problems as they arise2Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDecentralisation and Responsibility accountingDecentralisationThe restructuring of the organisation into smaller sub-units, such as divisions and departments, each with specific operations and decision-making responsibilitiesResponsibility accountingAssign responsibility to managers to run particular sub-units of the organisationHelps to reinforce the advantages of decentralisation3Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDecentralisationNegative consequencesManagers may focus too narrowly on their own sub-unit performance rather than on attaining the organisation's overall goalsSome tasks and services may be duplicated unnecessarilyGoal congruence: a behavioural challengeGoal congruence may be difficult to achieve in a decentralised organisationPerformance measures and reward systems may provide direction and incentives to achieve wider organisational goals4Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithResponsibility centresA responsibility centres is a sub-unit of an organisation where the manager is held accountable for the sub-unit’s activities and performanceInvestment centreProfit centreCost centreRevenue centre5Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith6Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithResponsibility centresTerminology in practiceCost centre is commonly usedRevenue centre seldom usedProfit centre may refer to both profit centres and investment centresStrategic business unit (SBU) often used to refer to investment centres and sometimes profit centres where they have their own distinct markets and strategies7Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithNew developments in organisational structuringShared servicesThe concentration of some support services that are typically spread across a decentralised organisation into a separate unit to service multiple internal customersMay focus on non-strategic areas, such as accounts payable, payroll, finance, information technologyCapture the best aspects of centralised and decentralised structuresBusiness units may choose to use a shared service unit or an outside provider, so there is an incentive for shared service units to deliver high quality service to internal customers8Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith9Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithNew developments in organisational structureTeam-based structuresFirms have moved away from hierarchical structures towards flatter structures that involve fewer levels of managementSelf-managed work teams may be used to manage all aspects of a processIn the production area, team responsibilities may includeProduction planning, ordering materials, liaising with suppliers and customers, all aspects of the production process, cost budgets and performance managementcontinued10Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithNew developments in organisational structureTeam-based structuresTeams may manage some processes more effectivelyTeams may promote employee satisfaction, improved customer satisfaction and productivityGreater empowerment may result from transfer of decision making responsibility from middle managers to teamsTeams are often set up as cost centresNon-financial measures may be more important in managing a team than cost measures11Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith12Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithFinancial performance reportsA financial performance report shows key financial results appropriate for the types of responsibility centreSegmented profit statements may show profits for major responsibility centres and the entire organisationA contribution margin format may be used in these reports to provide more useful information for managerscontinued13Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithFinancial performance reportsPerformance of sub-units and sub-unit managers may differA manager’s performance may be based on revenues and costs that the manager can control or significantly influenceto prevent good managers who are managing poor units from being penalisedIn evaluating the economic performance of a sub-unit, focus on revenues and costs that are attributable to that sub-unitNot everyone agrees this distinction is warrantedcontinued14Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithFinancial performance reportsCost allocation in performance reportsSome costs attributable to a sub-unit may be incurred outside of that sub-unit, so need to be allocated to the sub-unitCommon costs result from activities that are performed for the benefit of more than one responsibility centreArbitrary allocation may not provide useful information in reportscontinued15Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithFinancial performance reports A hierarchy of financial performance reports may be preparedTo reflect the organisational structureBudgets and variance reports may be included in performance reportsAllocated costs should be included in performance reports when relevantcontinued16Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithFinancial performance reportsReal-time reportingInvolves managers having access to up-to-date information whenever they require itGaining a competitive advantage may rest on having latest information on company performance readily availabilityThe difficulties in achieving a virtual close may prevent real-time reportingcontinued17Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithFinancial performance reportsReal-time reportingA virtual close can be achieved by reducing the complexity of end-of-period closing of accountsFocus on critical performance dataImplement ERP systemsRe-engineer the reporting system18Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTransfer pricingA transfer price is the internal selling price used when goods and services are transferred between profit centres and investment centres in a divisionalised organisationthe revenue of the selling division and the cost of the buying divisionAllows the selling division to record revenue and earn profit to reflect their effort in producing the productcontinued19Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTransfer pricingAllows the buying division to record the cost of that product to match against the revenue when it is eventually sold to external customersThe transfer price shouldResult in divisional profits that are a reliable and accurate measure of divisional performancePreserve and encourage divisional autonomyEncourage goal-congruent behaviourcontinued20Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTransfer pricingWho sets the transfer prices?Managers of profit centre and investment centres usually have considerable autonomy in deciding whether to accept or reject orders for goods or services and where to source their materialsThey may also have autonomy on whether to set and accept transfer pricesDirect intervention by corporate managers to establish transfer prices may be inconsistent with philosophy of decentralisationCorporate management may set a general policy for transfer pricingcontinued21Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTransfer pricingTransfer pricing methodsMarket-based pricesCost-plus pricesNegotiated pricesMarket-based pricesNeed competitive external markets for a productCost-plus pricesWhere there is no external market priceIntermediate products have no market outside the company, and are processed further to become final productscontinued22Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTransfer pricingCost-plus pricesMay not be suitable when the supplying division has excess capacityStandard variable cost plus mark-up allows supplying division to show a contribution margin on the transferred productStandard absorption cost may lead to over pricing of products and possible dysfunctional decisionsStandard costs should always be used in favour of actual costs, to prevent cost inefficiencies being passed onto buying divisioncontinued23Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTransfer pricingNegotiated pricesMarket price may form the starting point, and cost may be the lower boundThe issue of excess capacity in the supplying division can influence the appropriate level of transfer pricecontinued24Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTransfer pricingGeneral transfer pricing rule25Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTransfer pricing under different scenariosAn external market and excess capacity in the supplying divisionA transfer in the light of excess capacity would give the supplying division additional profits that it would not otherwise makeThe two divisions may negotiate a transfer price at a price less than market to provide an incentive for the buying division to purchase from the supplying divisioncontinued26Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTransfer pricing under different scenariosAn external market and no excess capacity in the supplying divisionWhen there is excess capacity, the supplying division will need to account for an opportunity cost of lost profits on sales due to the transferExternal market and limited capacity in the supplying divisionWhere capacity is limited, an opportunity cost needs to be accounted for in the transfer pricecontinued27Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTransfer pricing under different scenariosNo external market and excess capacity in the supplying divisionThere is no opportunity cost associated with the transfer and the transfer price will be cost-plusNo external market and no excess capacity in the supplying divisionThe transfer price will need to account for opportunity cost on lost sales due to the transfer28Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith29Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithTransfer pricingThe influence of taxationTransfer pricing is used by many companies to transfer profits between business units in different countriesInternational tax considerations will influence the transfer prices that are used for domestic purposesThis moves profits between different tax jurisdictionsService firms and not-for-profit firms may also use transfer pricing when services are transferred between business units30Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith