management control systems, transfer pricing, and 管理控制系统，转移定价，和

Financial Performance and Transfer Pricing,ACCT7320ControllershipDecember 1, 2010,Management Control Systems,A management control system - involves gathering and using information for planning and control decisions. A management control system guides the behavior of managers and employeesBasis for evaluation and rewardConsistent with “agency theory”,2,Management Control Systems,A management control system collects:Financial data such as cost, revenue, and net incomeUsually an important factor!Nonfinancial dataAs seen on BSC,3,Four Types of Financial Responsibility Centers,Cost center manager accountable for costs only.Revenue center manager accountable for revenues only.Profit center manager accountable for revenues and costs.Investment center manager accountable for investments, revenues, and costs.,4,Evaluating Management Control Systems,Motivation desire to attain a selected goal combined with the resulting drive or pursuit toward that goal.Goal congruence subordinates individual goals are consistent with top managements goals. Effort exertion toward a goal.,5,Organization Structure,Total decentralization means minimum constraints, maximum freedom for managers at the lowest levels to make decisions.Total centralization means maximum constraints, minimum freedom for managers at the lowest levels to make decisions.,6,Benefits of Decentralization,Creates greater responsiveness to local needsLeads to gains from quicker decision makingIncreases motivation of subunit managersAids management development and learningSharpens the focus of subunit managers,7,Recall the Costs of Decentralization,Leads to suboptimal decision making (incongruent or dysfunctional decision making due to loss of control)Focuses managers attention on the subunit rather than the organization as a wholeIncreases costs of gathering informationResults in duplication of activities,8,Decentralization in Multinational Companies,Multinational corporations are often decentralized centralized control of subunits in three or four different continents is hardDecentralization enables managers to apply their knowledge of local business and political conditions.,9,Decentralization in Multinational Companies,Often rotate managers between foreign locations and corporate headquarters.Job rotation with decentralization helps develop managers abilities to operate in the global environment.A drawback to decentralizing multinational companies is the lack of control.,10,Transactions between Divisions,What happens when transactions occur between divisions (subunits)?Effects on individual divisional performanceEffects on the overall organizationThe control design of the control system affects the outcome,11,Transfer Pricing,A transfer price is the price one subunit charges for a product/service supplied to another subunit of the same organization.Creates revenues for the selling subunit and purchase costs for the buying subunit, affecting each subunits operating income.,12,Transfer Pricing,What is the behavioral objective for transfer prices?Subunit managers need only consider how their actions will affect subunit performance without evaluating their impact on companywide performance.A well designed TP policy will lead to goal congruence,13,Major Decisions about TPs,Two major decisions in transfer pricing policy:Sourcing - should segments be free to decide whether to sell/buy from other segmentsPricing method- what transfer price should be set for any transferCriteria for “good” policy?goal congruencemanagerial effort subunit autonomy where desired,14,Transfer-Pricing Methods,Three general methods for transfer pricing:Market-basedPrice of a similar product/ service publicly listed Cost-basedSome basis of “cost” (plus a margin?)NegotiatedWhatever the subunit managers agreeAlso Dual Method:Revenue to seller, cost to buyer not equal,15,Effects on Income,Except for tax impacts, no impact on overall consolidated incomeAffects distribution of income among segments,16,The Importance of Transfer Pricing,Evaluation of a division for sale(What earnings are relevant?)Minority interest in a subsidiary(Is subsidiary being plundered?)Tax minimization(Can shift income to some degree.)Governmental contracting(Endorses full-cost TPs.),17,What Can Happen Regarding Goal Congruity?,18,Setting Transfer Prices,Range of Acceptable Prices:Ceiling: The outside market price that buyer would payRoom to share benefit.Floor: The outlay costs of supplier + opportunity cost.If idle capacity, its just outlay costIf no idle capacity, then its sales price to current outside customer.,19,Comparison of Methods,Market Price:Yes, if markets competitiveCost-Based:Often, but not alwaysNegotiated:Yes,Achievement of Goal Congruence,20,Comparison of Methods,Market Price:Yes, if markets competitiveCost-Based:Difficult, unless transfer price exceeds full costNegotiated:Yes,Usefulness for Evaluating Subunit Performance,21,Comparison of Methods,Market Price:YesCost-Based:Yes, if based on budgeted costs; less incentive if based on actual costNegotiated:Yes,Motivating Management Effort,22,Comparison of Methods,Market Price:Yes, if markets competitiveCost-Based:No, it is rule basedNegotiated:Yes,Preserving Subunit Autonomy,23,Comparison of Methods,Market Price:No market may existCost-Based:Useful for determining full-cost; easy to implementNegotiated:Bargaining takes time and may need to be reviewed,Other Factors to Consider,24,Tax & Multinational Transfer Pricing,25,Importance Continued:Eli Lily Case (1957),IRS objected to tax returnLily had used variable costs as TP basisCourt decided the true purpose was tax avoidance, held for IRSEstablished market-based TPs for tax purposes,26,Tax & Multinational Transfer Pricing,Transfer prices often have tax implications.Tax factors include not only income taxes, but also payroll taxes, customs duties, tariffs, sales taxes, and other levies on organizations.Se