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

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1. Chapter 12 Financial performance reports and transfer pricing Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
2. Decentralisation s Benefits Ù Managers of sub-units have better local information about markets and operations to enable them to manage their areas more effectively Ù Provides managerial training for future higher-level managers Ù May lead to greater motivation and job satisfaction for sub-unit managers Ù Allows corporate managers more time for strategic issues Ù Allows the organisation to react more quickly to opportunities and problems as they arise Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 2 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
3. Decentralisation and Responsibility accounting s Decentralisation ÙThe restructuring of the organisation into smaller sub-units, such as divisions and departments, each with specific operations and decision-making responsibilities s Responsibility accounting ÙAssign responsibility to managers to run particular sub-units of the organisation ÙHelps to reinforce the advantages of decentralisation Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 3 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
4. Decentralisation s Negative consequences Ù Managers may focus too narrowly on their own sub-unit performance rather than on attaining the organisation's overall goals Ù Some tasks and services may be duplicated unnecessarily s Goal congruence: a behavioural challenge Ù Goal congruence may be difficult to achieve in a decentralised organisation Ù Performance measures and reward systems may provide direction and incentives to achieve wider organisational goals Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 4 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
5. Responsibility centres s A responsibility centres is a sub-unit of an organisation where the manager is held accountable for the sub-unit’s activities and performance s Investment centre s Profit centre s Cost centre s Revenue centre Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 5 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
6. Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 6 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
7. Responsibility centres s Terminology in practice ÙCost centre is commonly used ÙRevenue centre seldom used ÙProfit centre may refer to both profit centres and investment centres ÙStrategic business unit (SBU) often used to refer to investment centres and sometimes profit centres where they have their own distinct markets and strategies Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 7 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
8. New developments in organisational structuring s Shared services Ù The concentration of some support services that are typically spread across a decentralised organisation into a separate unit to service multiple internal customers Ù May focus on non-strategic areas, such as accounts payable, payroll, finance, information technology Ù Capture the best aspects of centralised and decentralised structures Ù Business 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 customers Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 8 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
9. Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 9 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
10. New developments in organisational structure s Team-based structures ÙFirms have moved away from hierarchical structures towards flatter structures that involve fewer levels of management ÙSelf-managed work teams may be used to manage all aspects of a process ÙIn the production area, team responsibilities may include vProduction planning, ordering materials, liaising with suppliers and customers, all aspects of the production process, cost budgets and performance management continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 10 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
11. New developments in organisational structure s Team-based structures ÙTeams may manage some processes more effectively ÙTeams may promote employee satisfaction, improved customer satisfaction and productivity vGreater empowerment may result from transfer of decision making responsibility from middle managers to teams ÙTeams are often set up as cost centres vNon-financial measures may be more important in managing a team than cost measures Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 11 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
12. Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 12 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
13. Financial performance reports s A financial performance report shows key financial results appropriate for the types of responsibility centre s Segmented profit statements may show profits for major responsibility centres and the entire organisation s A contribution margin format may be used in these reports to provide more useful information for managers continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 13 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
14. Financial performance reports s Performance of sub-units and sub-unit managers may differ ÙA manager’s performance may be based on revenues and costs that the manager can control or significantly influence vto prevent good managers who are managing poor units from being penalised ÙIn evaluating the economic performance of a sub-unit, focus on revenues and costs that are attributable to that sub-unit ÙNot everyone agrees this distinction is warranted continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 14 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
15. Financial performance reports s Cost allocation in performance reports ÙSome costs attributable to a sub-unit may be incurred outside of that sub-unit, so need to be allocated to the sub-unit ÙCommon costs result from activities that are performed for the benefit of more than one responsibility centre vArbitrary allocation may not provide useful information in reports continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 15 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
16. Financial performance reports s A hierarchy of financial performance reports may be prepared ÙTo reflect the organisational structure s Budgets and variance reports may be included in performance reports s Allocated costs should be included in performance reports when relevant continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 16 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
17. Financial performance reports s Real-time reporting ÙInvolves managers having access to up-to-date information whenever they require it ÙGaining a competitive advantage may rest on having latest information on company performance readily availability ÙThe difficulties in achieving a virtual close may prevent real-time reporting continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 17 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
18. Financial performance reports s Real-time reporting ÙA virtual close can be achieved by reducing the complexity of end-of-period closing of accounts vFocus on critical performance data vImplement ERP systems vRe-engineer the reporting system Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 18 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
19. Transfer pricing s A transfer price is the internal selling price used when goods and services are transferred between profit centres and investment centres in a divisionalised organisation Ùthe revenue of the selling division and the cost of the buying division ÙAllows the selling division to record revenue and earn profit to reflect their effort in producing the product continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 19 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
20. Transfer pricing s Allows the buying division to record the cost of that product to match against the revenue when it is eventually sold to external customers s The transfer price should ÙResult in divisional profits that are a reliable and accurate measure of divisional performance ÙPreserve and encourage divisional autonomy ÙEncourage goal-congruent behaviour continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 20 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
21. Transfer pricing s Who sets the transfer prices? Ù 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 materials Ù They may also have autonomy on whether to set and accept transfer prices Ù Direct intervention by corporate managers to establish transfer prices may be inconsistent with philosophy of decentralisation Ù Corporate management may set a general policy for transfer pricing continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 21 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
22. Transfer pricing s Transfer pricing methods Ù Market-based prices Ù Cost-plus prices Ù Negotiated prices s Market-based prices Ù Need competitive external markets for a product s Cost-plus prices Ù Where there is no external market price Ù Intermediate products have no market outside the company, and are processed further to become final products continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 22 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
23. Transfer pricing s Cost-plus prices Ù May not be suitable when the supplying division has excess capacity Ù Standard variable cost plus mark-up allows supplying division to show a contribution margin on the transferred product Ù Standard absorption cost may lead to over pricing of products and possible dysfunctional decisions Ù Standard costs should always be used in favour of actual costs, to prevent cost inefficiencies being passed onto buying division continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 23 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
24. Transfer pricing s Negotiated prices ÙMarket price may form the starting point, and cost may be the lower bound s The issue of excess capacity in the supplying division can influence the appropriate level of transfer price continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 24 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
25. Transfer pricing s General transfer pricing rule Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 25 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
26. Transfer pricing under different scenarios s An external market and excess capacity in the supplying division ÙA transfer in the light of excess capacity would give the supplying division additional profits that it would not otherwise make ÙThe 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 division continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 26 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
27. Transfer pricing under different scenarios s An external market and no excess capacity in the supplying division ÙWhen there is excess capacity, the supplying division will need to account for an opportunity cost of lost profits on sales due to the transfer s External market and limited capacity in the supplying division ÙWhere capacity is limited, an opportunity cost needs to be accounted for in the transfer price continued Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 27 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
28. Transfer pricing under different scenarios s No external market and excess capacity in the supplying division ÙThere is no opportunity cost associated with the transfer and the transfer price will be cost-plus s No external market and no excess capacity in the supplying division ÙThe transfer price will need to account for opportunity cost on lost sales due to the transfer Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 28 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
29. Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 29 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
30. Transfer pricing s The influence of taxation Ù Transfer pricing is used by many companies to transfer profits between business units in different countries Ù International tax considerations will influence the transfer prices that are used for domestic purposes Ù This moves profits between different tax jurisdictions s Service firms and not-for-profit firms may also use transfer pricing when services are transferred between business units Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An 30 Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith