Advanced Management Accounting Lecture 1 PDF

Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Lecture 1 Case: iden.fy problem. How to solve this problem? Exam: li@le bit theory, 3 cases. 3 main ques.ons Management control system: should an organiza.on decentralize in order to ach...

Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Lecture 1 Case: iden.fy problem. How to solve this problem? Exam: li@le bit theory, 3 cases. 3 main ques.ons Management control system: should an organiza.on decentralize in order to achieve its goals and implement its strategies? ( 1+2) Top management has targets for the lower management. The lower management can decide on their own how to implement that. Management control structure: if organiza.on decentralizes, which responsibili.es and competences should be delegated to lower level managers? how should we decentralize ( 3+4) Management control process: chosen a responsibility structure, then how is the planning and control cycle organized and how is performance measured and rewarded? ( 5+6) Management control= everybody in the organiza.on is puPng his eQort in realizing the organiza.onal goals by bearing some responsibili.es. DiQerence between budget and realiza.on= variance analyses. Should we decentralize: what do we want to achieve + which strategy do we implement to realize these goals. Looking at the environment and strategy: this must be translated to the organiza.on its self. How should we decentralize: management control structure. How: responsibility centers, business units. AVer choosing: ini.alizing and realizing (ques.on 3). Triangles: responsibility point of view. People point of view. 1 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Informal management control What can an organiza.on implement and decide in the Zeld of management control in deZning responsibili.es and competences in rewarding people. All things that can be agreed upon between people. Informal management control system: talking to each other in the break. You (an organiza.on) can’t in]uence this. Formal management control instrument: know someone’s opinion to improve the products. Management control Management control: managers try to in]uence employees to put their eQort in realizing the organiza.on goals and organiza.on strategies. Convince people to do what good is for the company. Why do companies decentralize? Decentralizing is the most important reason why we need management control. You need to make sure that the decisions are good for the whole organiza.on. Lower level want to realize their own goals or of that of the department. This may harm the company. You need management control systems so you know that the decisions that have been made are for the good of the company. decentraliza.on Advantages - Improvement of quality of decision making of higher level managers - Improvement of quality of decision making of lower level managers  Lower level managers know more about their department than higher lever managers. - Increased economies of scale and specializa.on Specialize on one market/ product. This gives you compe..ve advantage. - Management development Forms of decentraliza9on one level four level - Delegate decision making power/ authority to lower level: make sure that the people have money and resources to realize the goals were they are responsible for. 2 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng - Delegate decision power: top management wants to ensure that they make the right decisions and realize the goals that you agreed upon. Top management wants realizing this goal to contribute to the realiza.on of the whole company. - Provision of suacient material and formal resources to execute that authority - Assignment of accountability and responsibility for the quality of decision making. Types of organizing decentralized organiza9ons func9onal structure: each manager is - responsible for a speciZed func.on such as produc.on or marke.ng. Ini.al organiza.on have a structure like this: produc.on sales or Purchase produc.on sales. Business unit structure: managers are responsible for most of the ac.vi.es of their par.cular unit, and the business unit func.ons as semi-independent part of the company. Matrix structure: managers have dual Responsibili.es. Need for control Why should you decentralize? Why don’t you trust the people. Trust isn’t enough. - Decentralized managers may not understand everything, the goals and strategies, developed by higher level managers, nor how the can contribute to these goals and strategies. - Managers do not automa.cally agree with organiza.onal goals and strategies developed by higher level managers. - Managers do not automa.cally have the resources needed to act with organiza.onal and strategies developed by higher-level managers  you cant be responsible for something what you cant in]uence. For in]uence you need resources. 3 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Func9ons of management control Management and control Management control can be understood as a part of the overall managerial func.on: planning, organizing, staang, leading and controlling. Accoun9ng and control Management control can be understood as an ac.vity that uses management accoun.ng informa.on: scorecard keeping, [email protected] direc.ng and problem solving. The informa.on about the performance is a direct rela.on between management control and management accoun.ng. Management control: in]uencing people. Management accoun.ng: Provides informa.on about the people at which you decentralized some decision power. Common denominator: money ( measure of organiza.onal performance). Human behavior Management control is about elici.ng desired behaviors by decentralized managers. This requires having some understanding of the behavior of people in organiza.ons Working with robots no management control. Management control problems are directly related to human behavior. Human behavior is not always predictable. - Human behavior is related to the goals that a company achieves. - Managers are mo.vated by rewards that they may get from their eQorts. - Managers are mo.vated by the social context in which they work. Mo9va9on by goals Goals may have a posi.ve eQect on eQect: - When goals are clear and direc.onal - When goals are not too distant - When achievement is valued posi.vely [email protected] points 4 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng - Goals are not aligned with strategy - Mul.ple goals reduce clarity and direc.on - Goals may be seen as threat. Mo9va9on by rewards Rewards are the price paid for products and services of managers: - Varia.on in their dependence on output - Controlled by labor laws - Variety across Zrms and func.ons [email protected] points - Rewards should not be seen as Zxed salary - Rewards may enhance internal compe..on - Performance and rewards should ideally be matched in.me Mo9va9on by social context External factors: work ethics Internal factors: organiza.onal culture, management style, tone-at-the-top [email protected] points - Culture explains control diQerences - Culture explains that organiza.ons are not easily changed - Culture can also be used as a control What mo.vates people? Extrinsic mo.va.on: mo.vated by things outside our self ( car, salary) Intrinsic mo.va.on: mo.vated to do something without a external reward. learn something, you need it in the future. Conclusion chapter 1 Download Socra.ve app  ques.ons about the course. 5 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Lecture 2 What mo.vates people? Extrinsic: salary, car Intrinsic: learn something for later In general it is a mix of both Merchant 1982 What types of control can you implement so people act for the goodness of the company? Can I run the company without people  control problem avoidance Rely on people involved, having enough skills/ mo.va.on People controls Can’t rely on people  any knowledge about what speciZc ac.ons are desirable  look at the ac.ons the workers are performing  Ac9on controls not knowing what people do during the day. Knowing which results are desirable  able to measure the results Results controls the shareholder view - Are the owners of the company. They have the power to close down the company. - Main Objec.ve of a company is giving return on the owner’s investments - Main concern for managers and management control is crea.ng value for the owners. - Domina.ng in US and UK - The stakeholders view - Contribute to and beneZt from the organiza.on: owner, customer, employees, suppliers, lenders, society - Company has a number of equally important objec.ves. - Input from all the most important stakeholders are crucial for the company’s survival - Main concern for management is balancing demands for the stakeholders - Domina.ng in Germany and Japan - You s.ll need to generate proZt, because otherwise it means that your costs are higher than your revenues. Total of your balance sheet will decrease and debt stays the same  Your equity decreases. 6 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Goals of the organiza.on - Owner: high proZt, low risk - Customer: reasonably market share, high sa.sfac.on, good market image. - Employees: nice job, rewarded accordingly for the market value of the job. - Suppliers: long term rela.onship with the company. - Lenders: certain solvency(minimum amount of equity to receive a loan) , liquidity, good rela.onships - Society: law-abiding, good ethics Corporate governance - Corporate governance= the system of rules and controls used by a board of directors to oversee a company to check top management. Being transparent about providing informa.on to outsiders, ensuring strong sense of ethical behavior permeates the organiza.on and ensuring strong control system is employees to detect variances. - = shareholders view ( rewarding the owner’s of the company) - Financial capitalism, Znancial crises and accoun.ng scandals. - An increased interest from the owners in the running of the companies - Increased internal control: SOX, Code-Tabaksblat ( because of bookkeeping scandal  showing a higher proZt than realized  rules and regula.ons to make almost sure that companies are not chea.ng) Corporate social responsibility CSR - Corporate social responsibility: the viewpoint that a business should be more aware of its impact on society and the environment. everybody eQected by the company. - Stakeholders view (proZt not only relevant, also other things) - Reac.on to the shareholder value trend  proZt isn’t only relevant. - Triggered by a number of event: accoun.ng scandals, increased global concern ( global warming/CO2) - Triggered media and NGO’s - Relevant topics nowadays Means of CSR - Code of conduct: ethical behavior - Sustainability repor.ng: how much damage creates the produc.on for the society. (development electric cars) - Internal repor.ng channels - Culture and values - Personal example - Storytelling - Training - Internet - All kind of bo@om up and top down ini.a.ves. (to decrease global warming, sustainability) 7 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Na.onal culture in]uences MC Example Possible implica.ons - Individual reward: are preferred in individualis.c countries ( UK, US) - Decentraliza.on: preferred in more equal countries ( Scandinavia) - Subjec.ve evalua.ons: are not preferred in countries with high aversion toward uncertainty ( Japan) Strategy Certain goals  planning  strategy - DiQerent perspec.ves: deliberate vs. emerging strategies - Strategic frameworks: Corporate vs. business unit strategies Prospector vs. defender strategies DiQeren.a.on vs. low-cost strategies - Strategy and management control systems Strategy and management control Zt Strategic management accoun.ng Deliberate strategies (opze@elijk gekozen) - The design perspec.ve: designed to Zt environment and capabili.es - The strategic planning perspec.ve: similar to above but more formalized - The posi.oning perspec.ve: choose a generic strategy that Zts the market structure Emerging strategies: (opkomende) Strategies mag be very clever designed but s.ll diacult to implement or not work very well in prac.ce. Instead strategies emerge out of how problems are dealt with in prac.ce. Bees and Zles example ( page 146) Corporate strategy - Single industry: making one product, good at it ( Coca-Cola, Volkswagen/Audi, MicrosoV  doesn’t sell hardware) - Related diversiKca9on: focus on one product but also selling related stuQ (phone, laptop) ( apple, proctor & gamble, unilever) - Unrelated diversiKca9on: don’t have anything to do with each other. (virgin, Yamaha(motor+ piano), Samsung television, mobile phone, washing machine) - Do we s.ck to our product, or do we have to invest in related/ unrelated products to survive. Prospector and defender - Defender: good at what they do, s.ck to that ( tetra pak, shell  what they sell doesn’t change much) - Prospector: constantly looking for new business opportuni.es ( apple, google). 8 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng - Analyzer: combina.on of both - Reactors: do not change un.l forced DiQeren.a.on vs. low cost - Low cost: making a product as cheap as possible, selling price as cheap as possible. compe..ve advantage based on cost leadership. ( easy jet, Ryanair, Aldi, Lidl) - DiOeren9a9on: price not important, making the best product. Compe..ve advantage by OQering something unique. (Ferrari, Aston Mar.n) - Cost-cum-diOeren9a9on: both at the same.me (Scania) - Stuck-in-the-middle: neither- avoid at all costs - What examples do I know??? Mechanis.c vs. organic MCS Mechanis9c: structure. What everything costs. Organic management: behaviorally mo.va.ng the employees. People culture. Organic management control system - Rely on people. more trust in people - Informal and loose control system. - Intrinsic mo.va.on - For example Neplix: a lot of freedom, trust the employees. - Low cost strategy has more mechanis.c management control systems. - DiQeren.a.on strategy more organic strategy 9 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng SMA: target cos.ng Price is set by the market, you need to take of the proZt margin. Then you can determine the amount of cost that you can make. From a cost plus prizing ( tradi.onal) to a target cos.ng point of view. SMA: Balanced scorecard SimpliZed form of social corporate responsibility. The tradi.onal shareholder view was all about the Znancial perspec.ve. Adding the customer process and innova.on perspec.ve, you have non-Znancial perspec.ves  taking into account simultaneously. For example buying something online: reviews, customer sa.sfac.on. Customer sa.sfac.on= s.mulates sales. - The Znancial perspec.ve of the balance scorecard is performing very well at non- Znancial CSR perspec.ves. 10 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Lecture 3 - Ques.on 2: how should we decentralize? - Responsibility accoun9ng: you don’t only plan what a departments needs to do (budget), but combining this with someone making responsible for doing that. - Responsibility centers: organiza.onal units headed by managers responsible for the unit’s performance. Organiza.onal unit responsible for it. - Four types of responsibility centers: 1. Revenue centers 2. Expenses centers 3. ProZt centers 4. Investment centers - How can you make sure that Responsibili.es and competences on the same level What criteria can we use, what arguments can we have to choose one of them. Investment center: certain head quarter, within you have diQerent divisions. Li@le companies within a bigger company. Responsible for revenue, cost and investments. ProKt center: genera.ng revenues and cost R&D: cost center engineered expense center Produc.on unit can control their cost. Producing more  more cost. = Rela.onship between input and output engineered expense center. Discre9onary expense center: Management decides how many cost they can make. There is no rela.onship to the output. Doubling the R&D doesn’t mean doubling the proZt. Responsibility center Rela.onship between resources and the output created. Recognizable in most of the organiza.ons. 11 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Eaciency and eQec.veness - ERciency: talk about cost. You look at the input that you buy that you use for the produc.on. Of a certain amount. Producing same amount with less cost  you’re eacient. - EOec9veness: realizing your goals. You want to realize certain amount of products. Sooner you realize the goals, the be@er it is. (without looking at the costs) - In most companies they’re related to each other. - Cost relate to eaciency and revenues to the eQec.veness  basic all type economic principle. Realize goal with minimum resources Or certain amount resources and realize maximum goal. Characteris.cs responsibility centers Engineered expense : rela.onship between input and output. Produce more allowed to use more Discre9onary expense: no rela.onship ( R&D) Revenue: no clear rela.onship (Sales department, doubling adver.sing cost doesn’t mean selling more) ProKt: rela.onship. ( proZt and loss account) Relates the revenue to the cost. Investment: input and output are related. There is a direct rela.on between the proZt and the investment made before = return on investment. 12 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Criteria for assigning responsibili.es - Core opera.ons of the unit and the measurement possibili.es of input and output is the star.ng point. - Organiza.onal structure may also be taken into account - Controllability: you need to be able to in]uence outcome of the output/ process  that is a controllable situa.on (selling ice cream, you can’t control the weather). - SpeciZc strategic concerns Revenue centers - Output is measured in monetary terms, but no formal a@empts is made to related input to output. - Marke.ng/sales units - Evalua.on by measuring actual sales against budgets. - Control depends on the eQec.ve establishment of a reference point to which actual revenues can be compared. - Financial measures are oVen complemented with non-Znancial measures when evalua.ng revenue center managers Sales department responsible for the sales, lot of input = lot of cost. Costs are not clearly related to the number of products that they sell. Make a plan what you expect to sell and that plan (marke.ng plan). Miscalcula.ng something in the prognose of what you are going to sell = dripple eOect. DiQerence Actual sales and budget sales if structural diQerence, do something on how you Znd the budget sales. Expense centers - Standard cost calcula.on - Responsibility centers whose inputs are measured in monetary terms, but whose outputs are not. - Two types o Engineered expense center o Discre.onary expense centers Produc.on departments where you make a lot of the same products. You can calculate how many labor or machine cost are needed for one product = standard cost calcula.on. Rela.onship between expected outcome and standard cost. A lot of Repe..ve tasks which are taken over by robots/ machines. - What kind of informa.on gives the variances analyses. What can we change for next year. Lot of management control aspect to the variance analysis. 13 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Engineered expense centers Discre9onary expense centers R&d department What is the R&d budget going to be? Incremental budge.ng: last year 10 m, this year 11 m Zero-based budget: ask yourself the ques.on. If I will develop a new R&D department. What is it going to cost. What is the budget? Maybe this way you will cut on R&D costs. ProZt and investment centers - The two most far-reaching forms of formal decentraliza.on - ProKt center: responsibility center Znancial performance is measured in terms of proZt. - Investment center: proZt is compared with the assets employed in earning it. - Use the name business unit for them. Cost and revenues can be in]uenced by diQerent decisions. Absorp.on and direct cos.ng, the way of calcula.ng proZt. Fixed cost of a company can be assigned to the products or the period. A lot of decision needs to make: valua.on method, deprecia.on method. These decisions eQect the proZt. Investment center: same proZt with the same problems with calcula.ng them, related to the invested capital. For instance total of the balance sheet. What do you do with current liabili.es? Is it invested capital or not? These decisions in]uence the invested capital which you are going to use to calculate the return of investment in an investment center. 2 basic condi.ons before delega.ng proZt responsibility - Manager needs to have access to the relevant informa.on needed for making such a decision - There should be some way to measure the eQec.veness of the trade-oQs the manager has made. Trade-oQ= eQec.veness/ eaciency A manager should be able to decide increase the eQec.veness and decrease the eaciency. If the increase of the eQec.veness is higher than the increase in cost  good thing. Advantages with proZt centers Responsible for genera.ng proZt: - The quality of decisions may improve - Best learning school is held accountable for something. Being proZt responsible is good. Provide training ground for general management. - ProZt consciousness is enhanced. Diacul.es with proZt centers - Loss of control: lower level management responsible for proZt. Can mean a loss of control. 14 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng - Increased fric.on: making decision that is good for the department but not for the whole company. - Addi.onal costs: if you create diQerent business units, each have a own department, duplica.on of the same ac.vi.es because you created mul.ple responsibility centers. - Lack of competent general managers - Too much emphasis on short-run proZtability: looking for crea.ng proZt for the next 2 years and not next 5 years. Constrains on business unit authority - Constraints from other business units: buying and selling to each other. forced to buy internal or not. - Constraints from corporate management: top management needs to give away some of their power to lower level management - Think about the 3 ques.ons related to the basic scheme - Think about giving away the power that top management has. How do you measure the proZt? Where are you going to look at? Investment centers ProZt centers + amount of investments made to generate that proZt = asset employed. 2 methods Returns on investment (ROI): income related to the capital that generated that income. Earning before interest expenses and taxes/ assets employed. Residual income (RI): earnings before interest expenses and taxes – cost of capital x assets employed. You don’t need to pay this to the bank. ROI = proZt / I.C (investment capital) = proZt/ rev x rev / I.C = proZt margin x capital turnover 15 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Dupont formula Coca cola proZt margin low x high capital turnover (amount sold) Rolls Royce  proZt margin high x low capital turnover Problems with using ROI for performance evalua.on Addi.onal investment possibility Now assume that there is an investment proposal with the following numbers: earnings before interest expenses and taxes of €4,200 and capital employed of €20,000. This means the ROI is 21 per cent (€4,200/20,000) and the RI of the investment is €2,200 (€4,200 – 0.1*20,000). Thus, this investment is clearly beneZcial for the company as a whole. Working capital: should the current capital be part or not part of the investment base? Excluding, investment base becomes smaller. Performing be@er than before, because of the investment base. Property, plant and equipment Acquisi.on of net equipment Gross book value Annuity deprecia.on Other valua.on methods 16 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Economic value added Stricter rules of Calcula.ng residual income. DeZne stricter rules for the calcula.on of proZt and cost of capital. DeZned the ways in which you can calculate the assets that are invested in the company. Soul meaning: Reduce the number of outcomes when you going to calculate residual income The performance stays the same EVA: adjusted net opera.ng proZts aVer taxes – cost of capital x adjusted assets employed. (WACC)  Which indicator is more important and which combina.on gives me a good performance of the company as whole? Only looking at proZt not good  can be in]uenced easily. Lecture 4 Quiz ques.ons Agency theory = discussion between principal and agent. Corporate governance: company and shareholders rela.on. - Corporate governance is closely related to agency theory. - Tesla’s strategy will change in the future from prospector to defender. Only car with electric charge, now many companies have electric cars. Facing compe..on. Defender strategy. S.ll ahead of compe..on. DiQerent models  B - DiQeren.a.on strategy is more focused on eQec.veness and low cost strategy on eaciency - Target cos.ng is not based on cost plus pricing instead of market oriented pricing decision. - An university will not beneZt from.ght control than loose control. Responsibility center goal incongruence: if you decentralize, you give the business units freedom to make decisions. The decisions can be good for the department, but not for the whole company. Looking at this by example with transfer pricing. How should we decentralize? Previous week: What kind of responsibility centers should we create and the criteria? If we have created business units, they are selling and buying from each other ( transfer price),  how should they determine the transfer price. Transfer pricing methods EXAMPLE You have a ba@ery decision and car decision. Ba@ery division can sell it to the car division, but also to outsiders. The Ba@ery Division has unit-level costs of €40 and assigned higher-level costs of €3,600,000. The Division expects to produce 200,000 ba@eries during the period. 17 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Higher-level assigned costs € 3,600,000 Units to be produced € 200,000 Higher level costs per unit € 18 Unit-level cost € 40 Transfer cost € 58 (absorp.on cost, full cost) - The Ba@ery Division has excess capacity of 100,000 units and uses the absorp.on cost method to set a transfer price of €58 per ba@ery. - The Vehicles Division oQers to purchase 100,000 ba@eries (the excess capacity) at a price of €55 per ba@ery). The big ques9on is whether a division has excess capacity or no excess capacity No excess capacity, the transfer price will be the market price. Otherwise a cost based transfer price. Transfer price: variable cost + opportunity costs The car division. OQered 55, can except or reject this price. Variable cost 40  company as a whole you have a contribu.on margin of 15 euro. Goal incongruence: Ba@ery division are free to make their own divisions (say no to 55), but you know that 55 is a good oQer, because they have excess capacity. Don’t selling the excess capacity  they won’t generate 15 euro’s contribu.on margin. Contribu9on margin: diQerence between selling price and variable cost. Having a posi.ve CM, you earn something back on your Zxed costs. They can use the 15 euro’s to cover the Zxed cost. Not selling anything, the loss will be greater. Company as a whole do it, you at least earn 15 euros of the Zxed cost. The division can say no, they will do that, because they think that they have a loose. Excess capacity you should except every price above the variable cost. 18 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng No excess capacity, they want to accept this, then they need to say no to someone else. The other client generates proZt. Car division will pay the transfer price equal to the selling price to the external customer which has to be skipped. Transfer price= market price, otherwise cost based TP - 60 euro per ba@ery ( 58 full cost + 2 proZt margin) Transfer price: Variable cost + opportunity costs Rejec.ng this price  transfer will not take place. Buying it externally. This is a general transfer price rule.  if the transfer between 2 divisions take place. The split of proZt between those two are relevant. Transfer price becomes low the buying divisions will end up with a higher proZt. ProZt of the whole company won’t change. Only the proZt between divisions will change. Transfer won’t take place the proKt determina9on changes  proZt of the whole company changes.( selling less cars) Transfer pricing - Internal selling price - Should search for a compromise between the two business units - Perfect situa.on: the transfer price agreed upon, should increase their proZt but also the proZt of the company. - Transfer price EQects the revenues of the selling divisions (maximize revenues), and the costs of the buying division ( reduce costs)  opposite interest. - No transfer: proKt determina9on of the whole company will change. - Transfer: proKt division Transfer price methods - Market price-based transfer price: internally equally the market price. = market price - Cost-based transfer prices  your own method  On marginal cost  marginal revenue= marginal cost  op.mum  On full costs (absorp.on) or full costs + markup - Nego9ated transfer prices: agreement among business units. Basis is the Zrst two methods. - All kinds of varia.ons ( on the Zrst two)  Two step pricing  ProZt sharing  Dual pricing Transfer price is market price if not possible  use cost based transfer price method. Selling price determined by the market is comparable to the market price oriented transfer price. 19 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Market-based transfer prices - Actual price: charged to external customers - Listed price of a similar product - The price a compe.tor is oQering ( bid price) Market price is not easy to Znd. The ideal situa9on - Competent people - Good atmosphere - A market price: What is a relevant market price? Set transfer price at that market price - Freedom to source: selling division and buying division  selling division has the freedom to sell outside the company. Buying division has the freedom to buy outside the company. - Full informa.on: closer to full informa.on than decades ago. - Nego.a.on Goal congruence: ideal transfer price allows each division manager to make decisions that maximize the company’s proZt, while [email protected] to maximize his own divisions proZt The company as a whole: no divisions, no internal transfer price. What is externally bought and sold. What is internally sold is not important for a company as a whole. What is the most op9mal transfer price? General transfer price rule = op.mal transfer price seen Transfer price = variable costs (transfer cost) + opportunity cost (missed contribu.on margin by not choosing for the alterna.ve) No excess capacity of a company: skip a customer  generates proZt  you have opportunity costs. Business units who makes you skip, have to pay for skipping a customer. The transfer price should be set at the market price (60) Having excess capacity: opportunity is 0. Doesn’t need to skip a customer. Minimum transfer price= variable cost Maximum transfer price= market price 20 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng SeVng transfer prices The value placed on transfer goods is used to make it possible to transfer goods between divisions while allowing them to retain their autonomy. Goal incongruence When divisions want to deviate from the market price, they need to set their own transfer price, may result in goal incongruence. Not using the market informa.on, but their own cost informa.on. No excess capacity: don’t need to nego.ate  pay the market price. Excess capacity within the selling division: nego.a.on area between minimum and maximum price.  Business units have the autonomy to make their own decisions and set their own TP  Considera.ons that BU can make in sePng their TP Cost based transfer prices Using your own cost to form the base for the transfer price. - The cost basis  Absorp.on cos.ng: full costs (or)  Direct cos.ng: variable costs When calculated cost  do you at a proZt margin to come to a transfer price Calculated to cost: adding a proZt margin. Variable + Zxed cost  proZt Variable cost + opportunity cost opportunity cost = contribu9on margin. Contribu.on to the Zxed costs and or the proZt. Back to the example Variable 40 Fixed 18 ProZt 2 =Market price 60 =Opportunity cost: 20 Transfer price 55  make up variable cost and 15 of Zxed cost. Is part of the opportunity costs. 21 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Nego.ated transfer price - Agreement among business units (BU) - Depends on the bargaining power of the BU managers - The stronger the BU manager the higher/ lower the proZt be. - Depends on the freedom of the BU manager Varia.ons Don’t need to focus a lot on two step pricing and proZt sharing. Certainly not focus on dual pricing. Need to know what it is, but from a management control perspec.ve not a sa.sfying solu.on. - Two step pricing: variable costs + charge for Zxed costs - ProZt margin: variable cost + realized proZt - Dual pricing: nego.a.on leads to nothing. Cant agree on transfer price. Selling wants a transfer price to high for the buying division. Two sets of transfer prices A + B are comparable to cost based transfer prices based on full costs plus markup How to solve goal TP incongruence (if managers cannot agree) - Should top management intervene? - Should the top Change responsibility structure? - Or accept the non-op.mal outcome for the whole company?  Pros and cons every interven.on; what is the most op.mal solu.on? Lecture 5 (repe..on) Transfer pricing: Decentralizing you give businesses the freedom to make their own decisions. If you give people responsibility + freedom  they perform be@er  could be not best for the company, only for the department. - No goal congruence: if a decision isn’t in the beneZt for the company only for the department. - If market price not available  which cost based TP do you use? - DiQerence between proKt division (proZt split) and between divisions and proKt determina9on. - Decentraliza.on: must top management intervene if BU decide sub-op.mal? Decrease their decision power changing the responsibility structure  moving toward centraliza.on. 22 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Lecture 5 Purposes with budgets Budget: a Znancial plan for a department. Also the Znancial plan combined with a person who is responsible for realizing the budget. - Planning: Resource distribu.on, Coordina.on - Accountability: Monitoring, Mo.va.on - Process: Re]ec.on, Communica.on - Ritual: Habit, Legi.macy Master budget: es.ma.ng what you are going to sell + es.ma.ng the proZt Budget gaming Exposure: Showing a be@er budget than expected Hedging: Showing a worse budget than expected Budgetary slack: making a budget, that can be easer achieved than realized. Underes.ma.ng of budgeted revenue or overes.ma.ng budgeted expenses. Cri.que against budge.ng - Cri.cism to use on budget: internal gaming and myopia (not looking further than budgeted year) - Time consuming: resource consuming, takes.me to makes plans - Calendar year could be too long; budget for a shorter period - Reliable budget making is diacult - Makes organiza.ons less ]exible 23 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Dealing with budge.ng (adjustments on the budge.ng process) Rolling forecasts S.ll making a budget, but adjust the budget every 3 months. You make a new budget. This gives you the ]exibility to adjust it every 3 months. Introduce rela9ve targets: not look at the numbers in the budget. But want to realize an increase in the revenue compared with historic results. Or Compare with compe.tors (losing market share. Decentraliza9on: realizing goals without using a budget ( beyond budget hope and Frazer). Abandoning the budget as a way to decentralize. Performance measurement systems - Implement strategy - Need a performance evalua.on - Performance measures o Financial; revenues, ROI o Non-Knancial; customer sa.sfac.on, lead.me - Comparing the outcome of the chosen measures against appropriate standards, managers can access the performance of the company and its units. - Performance measurement systems also provide feedback to managers and employees on their eQorts thereby fostering learning and mo.va.on. Financial measures - DiQerent responsibility centers. - The choice of Znancial measures is a natural star.ng point for many managers o Assigning Znancial responsibility to organiza.onal subunits o If you’re Held responsible for realizing certain goals for performing in a certain way you need to be able to in]uence your own ac.ons. That is the controllability principle. - This is the Zrst step in evalua.ng Znancial performance - Next step: discuss how to outcome of Znancial measures can be analyzed: variance analysis Variance analysis - Tradi.onal master budget: everyone responsible for the budget.  but there is always a devia.on between the plan and realiza.on. Devia.on becomes smaller  performing be@er. - Monthly or quarterly analysis of diQerences between actual and budgeted revenues and expenses - Having more nega.ve variances than posi.ve  adjust the realiza.on or the plan - Nega.ve analysis: what should we do about it. 24 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Limita.ons of variance analysis - Does not tell us why the variance occurred or what is being done about it. - How to decide whether a variance is signiZcant  decide outside the variance. - OQsePng variances might mislead the reader  total can be acceptable but you can have nega.ve variances. - Is performed on the income statement  cost and revenues, a lot of assump.ons. Decreases the value relevance of the variance analysis. - Risk that there may be too li@le focus on the capital invested to generate the proZt. Risk is not incorporated. What risk do we take to develop a product? - May lead to too much focus on Znancial performance  also implemen.ng non-Znancial performance measurement. Combining Znancial and non-Znancial measures Only relying on Znancial measures is inadequate and can be dysfunc.onal - May encourage short term ac.ons that are not in the company’s best interest. - Managers may not make investments that promise long-term beneZts because they hurt short term results. - Can distort communica.on between business unit managers and top management - May mo.vate managers to manipulate data Performing well in non-Znancial areas is important ( customer sa.sfac.on, R&D, learning and innova.on. Developing new products is important. Have the internal processes in order. The balance scorecard 25 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Socra.ve ques.ons - The design department of a car manufacturer should not be an engineered expense center  R&D - Eaciency and eQec.veness can be nega.vely related. - The ese can be considered mainly a Engineered expense center , most ac.vi.es are standardizes. Some ac.vi.es are unique  discre.onary expense center. No revenues  no proZt center Par.ally responsible for investments  not investment center - Most relevant investment base for an investment center: non-current assets plus working capital or total assets minus current liabili.es or non-current liabili.es plus equity  they are all the same Performance, compensa.on and mo.va.on in]uence each other. Payed more, perform be@er because of mo.va.on, more compensated. All possible. Func.ons of compensa.on - Pay - A@ract - Keep employees - EQort - Inspira.on - Goal congruence - Flexible compensa.on (partly based on your performance; good for mo.va.on). Salary that is independent of your performance, that does not mo.vate you. Types - Fixed pay - Short term variable incen.ves - Stock op.ons (becoming owner  perform be@er, focus on beneZt company) - Incen.ves based on non-Znancial measures - Non-Znancial incen.ves ( career opportuni.es) Agency theory - World of two-person explicit or implicit contracts - The principal (owner) delegates decision-making authority to - The agent (manager) who performs services - The agent is a u9lity maximizer , there only mo.vated by self-interest, only what good Is for themselves. Reward and give something in return. 26 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Self-interest - Agent is a u.lity maximizer, All agents act in their own self interest o Financial compensa.on o Leisure.me o Nice working condi.ons - Leisure it the opposite of eQort - Managers prefer leisure- work aversion - Withholding eQort is called shirking - Principal (owner) are only interested in Znancial returns. Faced with asymmetric informa.on - Principal can’t easily monitor the agents ac.ons - The agent knows more than the principal about the task = private informa9on - Diverging preferences may led the agent to manipulate informa.on = moral hazard Control mechanisms - Monitoring o Limi.ng ac.ons that beneZt the agent at the expense of the principal o Financial control system and audi.ng o Very diacult to monitor complex tasks - Incen.ve contracts o Should make the agent work in the principals best interest: goal incongruence. Best way to in]uence the manager; give a contract that lets him work in the best beneZt of the company. Intrinsic mo.va.on - Sa.sfac.on of doing something (mo.vated as a person) and reaching the goal. - Sa.sfy needs directly - Related to internal needs Extrinsic mo.va.on - Reward people to let them do whatever you want them to do. - Sa.sfac.on from what you will get if you reach the goal. - Sa.sfy needs indirectly - Relates to external needs Mo.va.on crowding theory (MCT) - Extrinsic mo.va.on …. Ruins the intrinsic mo.va.on of people. - Crowding in and out eQect. If people are intrinsically mo.vated be careful, you destroy it, won’t get it back. Not only about money, there are other non-Znancial mo.va.on methods. 27 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng The crowding-out eQect - Total mo.va.on is the sum of intrinsic and extrinsic mo.va.on - Increasing on e type might reduce or increase the other - Extrinsic mo.va.on tends to crows-out (but may crowd-in) intrinsic mo.va.on Adding external rewards might reduce the total mo.va.on. Total mo.va.on might increase if an external reward is removed. What do you believe in? Extreme theories in mo.va.on and rewarding. Agency theory: ma@er of money, people have only material needs. Have as much as material needs possible for a minimum of work that needs to be done. Economic principal. Given a number of resources and realize a maximum goal. MCT: not about money alone, there are other non-Znancial mo.vators which mo.vate people to do something. Take that in considera.on in a rewarding and compensa.on scheme for the employees. Socra.ve ques.ons - For a company as whole the internal transfer price does not exist. - If the internal transfer price takes place when the selling department has no excess capacity, there is no room for nego.a.on about the transfer price. No excess capacity means that the transfer should take place at the variable cost + opportunity cost= market price. Excess capacity: Price should be above the variable cost, you realize some contribu.on margin. You retrieve a li@le bit of your Zxed costs. - When the selling division has excess capacity every TP above the variable costs should be accepted even if this is below the full costs. It is above the margin. Always accept a selling price above the variable price if excess capacity - When the transfer takes place the proZt determina.on of the whole company is not eQected. - Dual prizing is a form of interven.on in the management control structure by top management. (no longer responsible of transfer price, etc. what you originally implemented. 28 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Lecture 6 20% theory, 80% case Chapter 12: is this management control system, appliable for all sort of systems. Now focused on produc.on, but can you also use it Lawyer Zrm, hotel, prison. Is it also for non-produc.on companies. Video about 5 advantages and disadvantages of centraliza.on and decentraliza.on. Centraliza.on at McDonalds  everywhere hamburger is the same No decentraliza.on in Army  one person decides Decentraliza.on on Universi.es  facul.es decide on their own.  Management control challenges in service delivery Producing services Measure the performance of a company. Characteris.cs: - Absence of inventory buQer - Diaculty of quality control - Labor intensity - Mul.-unit organiza.on  lot of specializa.on - Historical roots - DiQerence between output and eQect Big four company - Service organiza.ons don’t have an inventory, so you do not need to invest. - Measurement in quality is diacult: what is a good audit/ advice, but is it is also important? - Services are provided by people, provide to clients. Services are produced and sold by people. Managing your people is important: depends on the hours that they can declare of the customer, customer needs to be convinced that it adds value. - Lot of specializa.on: tax, audit, advisory - Historical: long term rela.onship between client and Zrm, but can lead to not being objec.ve anymore. Now mandatory regula.ons. - DiQerence: giving perfect advice, but implemen.ng that advice maybe doesn’t have to give the desired eQect. A good opera.on (output), but eQect is open to discussion (pain is not gone). Accoun.ng is more about centraliza9on. DiQerent partners, with workers under them. ProKt center. Revenues generated by the people. No rela.onship with invested capital and revenues. 29 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Professional services Characteris.cs - Goals less reliant on invested capital - Professionals interested in high quality - Output measurement complicated - Small size requires less management control - Produc.on and marke.ng are combined University - Realiza.on of the goals not direct related to invested capital. Inves.ng lot in buildings and supply: but maybe that is not directly related to the goals of the organiza.on. - Highly intellectual environment: deliver, produce high quality. - Output measurement: what do we want to achieve, how do you measure it. Number of graduates. Contrast between intellectual knowledge and gradua.ng. - Small size: very independent, free to do whatever they want. - What we produce in educa.on is immediately delivered to the customer. You can’t make lectures or courses in advance. Produc.on of the course is at the same moment with the consuming. Financial services Characteris.cs: - Monetary assets following mul.ple tracks - Large varia.ons in.me periods - Explicit risk-reward trade-oQ - Large degree of automa.on Banks Lot of rules and regula.ons that need to be followed by all banks in the world, the people are the clients of the bank. People are the vic.m of the rules and regula.ons. GePng a mortgage of your bank: diacult, Zxed income needs to be high enough and sure enough also does the value of the house be more. - Monetary: revenue for the bank is the diQerence between interest you pay for your loan and what you get for puPng money on the bank. - Entrepreneur: loan for a short period of.me; un.l customers have paid you. Mortgage id 30 years. - Bank looks at the risk; Risk increase: wants more rewards - Internet banking, closing down physical oaces.  The banking industry is centralized  European Central bank/ Dutch bank; they decide for 90% on relevant issues. Not up to Rabobank or Ing How does this responsibility structure work, how does centraliza9on or decentraliza9on work? how does it work with business units? Are there business units? Are there proKt centers (in a bank)? 30 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng DiOerent types of organiza9ons with diOerent func9ons and diOerent du9es in society? Are the basic management control principles also applicable for these organiza9ons? Are the advantages and disadvantages centraliza9on/decentraliza9on another weight? Health-care organiza.ons Characteris.cs: - Deliver services in diacult social situa.on - Large dynamic in health-care provision - Third-party payers split consump.on and pay - Professionals with large autonomy - Essen.al importance of quality control Discussions about money, Znancing the health care. GePng older, making more use of health care. Focus on eaciency, but also maintain the quality of healthcare. - Every pa.ent is diQerent. - Split between consump.on and pay: you pay the insurance company, they the hospital. - Professionals; doctors have autonomy - Doctors deliver high quality services, you assume that. Responsibility accoun9ng/ units, how can you translate that to a hospital sePng. Which responsibility and decision making power is delegated? Almost everything. Only the eQec.veness side are leV to the doctors. Eaciency decisions are not made by the doctor. Doctor only looks at the treatment, to many costs Dilemma. Non-proZt and NGO’s Characteris.cs: - Absence of proZt as the dominant goal - Contributed capital instead of invested capital - Fund accoun.ng to manage diQerent funds - Complex governance Government organiza9ons, Red Cross, green peace, doctors without borders. - ProZt is not a dominant goal (, not invested capital but contributed capital, money from donators) - More about genera.ng funds for pay a ac.vity, instead of accrual accoun.ng. - Complex governance if a disaster would happen, nonproZt organiza.ons organize dona.ons for the cause in order to help those people. Some.mes money hasn’t been spend yet. There is a control issue. This isn’t imaginable in a proZt organiza.on. 31 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng What went wrong in government IT? A lot of ICT failures by the government. - Should we decentralize? These decisions were not made by the central government. This was delegated by the ministry by someone who has not knowledge about ICT systems. If you decentralize People must be held accountable for the results at the end  this didn’t happen for the ICT failures in the Netherlands. - How should we decentralize? - How do we organize the p&c cycle? - Performance measurement? Give you signal when it’s failing and not at the end. - Incen.ves? Somebody needs to be responsible and need to feel it in his wallet. - Mo.va.on? You want to do a good job Essen.al feature Before more focused on produc.on companies, aVer the WW needed to produce a lot. AVer that on the service industry. Also a development in management style and organiza.ons. Should we centralize or decentralize? We are moving from the tradi.onal organiza.ons (making products) to a new organiza.on. Mass customiza.on: Producing and developing what the customer wants (tomorrow). Outsourcing, decentraliza.on. Are the basic ideas of decentraliza.on also realizable for non-produc.on environments. Conclusion - Special characteris.cs of service provisions are re]ected in management control systems. - Financial services: dominance of money as the material - Health-care services: developments in matching service delivery and payment - Non-proZt: lack the usefulness of money as the ul.mate criterion for decision making Lecture 7 (recap, exam 2019) 32 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Tutorial quesBons Tutorial 1 What does the walmart organiza.on look like? Draw an organiza.onal chart/ diagram for the opera.ons in the usa? what is the overall goal of Walmart? How is Walmart realizing this goal? What is the strategy? What is the basis on which Walmart builds its compe..ve advantage? How is Walmart decentralized? Problem solu9on ques9ons 1a think of at least one way to further decentralize Walmart and explain why this may beneZt the company b. think of challenges Walmart may face when implemen.ng your sugges.on, how can they tackle these challenges 2. think of at least one way to further centralize Walmart and explain why this may beneZt the company Prac9cum 2 Goal: ethical + sustainable What need the planet needs to ]ourish. 14 goals. future Zt. Saves money. What makes you diQerent How do you think the goals and CSR strategy of the body shop contribute to crea.ng shareholder value in the short and long run Give three examples of stakeholders and explain how the Zve core values are importance to them What kind of strategy does the body shop currently have? Select and mo.vate one op.on from each of the lists below: a. Single industry, related diversigZcia.on, unreletaed b. Prospector, defender, analyser, reactor c. Low cost, diQeren.a.on, cost cum diQeren.a.on, stuck in the middle 33 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng What problems will the body shop face going forward? Name at least three future developments and poten.al threats to the body shops strategy What should the body shop do to stay a pioneer in the are of csr and stand out from its compe.tors? Mo.vate at least one sugges.on. Keep in mind the stakeholders view and the goals of the organiza.on. The body shop has a high consciousness in terms of corporate social responsibli@y, but a problem may be that it is hard to make sure that everyone in the organiza.on is contribu.ng adequately to the csr goals. Do you think that a mechanis.c or an organiz management control system is most suitable for the bost shop in this regard. Prac9cum 3 What is the goals of the publishing division and exis.ng store division Characterize the form of responsibility center for publishing division and exis.ng store divisions and why Characterize the form of responsibility center for the cafes given the two alterna.ve ways of organizing cafes Which form of responsibility center is the best alterna.ve to pursue in light of elanort purpose with crea.ng the cafes How does the bookstore need to be restructured for the cafes to become proZt centers? What extra responsibili.es should be awarded to the café (managers)? What are the advantages and disadvantaged of doing this? Link your answer with the concept eaciency and eQec.veness By overall comparison, do you think this restructuring has merit for the bookstore ? why? Prac9cum 4 Out of the pocket cost= variabele costs. When resourcing decisions for the x73 materials is in the best of interest of a. Division C  b. Division B   Division A   Calculate the contribu.on margin of eacht : verkoopprijs – veraibele kosten  in case of internal sales 34 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng  in case of external sales d) healthcare inc its en.re what is the bandwidth of the transfer price of the monitors being sold by division B to division A in order for this internal sale to take place what is the minimum transfer price of parts being sold by division C to div. B in order for this internal sale to take place which condi.ons need to be sa.sZed for the various divisions to act in the best interest of the company to overcome goal incongruence problems paul halper.n suggests to mandate division A to buy his products. What are the advantages and disadvantages of manda.ng internal sourching in this case> what should mr. fePnger do what changes could be made in order to overcome the goal incongruence problems? You can think of a. organizing the company in a diQerent way b. changing the incen.ve system. Evalua.on criteria of one or more of the three divisions. Tutorial 5 Short term Knancial  can hurt long 9me Knancial measurement. Balanced scorecard: vision and strategy has impact on the these 4  customer perspec9ve, innova9on and learning perspec9ve, Knancial perspec9ve, internal business perspec9ve Purpose of the change in bonus cheme Calcultate the bonus earned by the manager of Surgical instrument division and ultrasound diagnos9c equipment. 1e en 2e How does this change in bonus scheme incuence the manager choice Is there any evidence hat the new plan has produced. 35 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng How do you think that the new bonus scheme incuences the managers intrinsic and extrinsic mo9va9on ( use the mo9va9onal crowding theory) EOects. Crowding in out. Link to case. What are you sugges9ons for further improvements to be made this bonus systems. Address strong and weak traits of the new bonus system Tutorial 5 How It diOers from regular produc9on organiza9ons from a control perspec9ve ? What kind of responsibility center was it before the change into proKt centers? Is the change appropriate. Goals Erasmus: High quality academic World class research Rankings Interna.onaliza.on Diversity & inclusion The goals of an university are less reliant on invested capital How to achieve these goals What role does capital play?  How do we achieve high quality educa9on and high quality research How to control these professionals? How to measure performance eOec9vely of these professionals Universi9es can incuence ranking. Is this a strategic choice. How to translate this to the organiza9on Goal incongruence  Faculty management : on what do the focus  top management 36 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Tutorial Answers Tutorial 1 What does the walmart organiza.on look like? Draw an organiza.onal chart/ diagram for the opera.ons in the usa? Central Board & execu.ves Regional store managers regional distribu.on manager Individual stores distribu.on centre departments & managers transporta.on& truck drivers what is the overall goal of Walmart? Vision statement: to be the best retailer in the heart Mission statement: saving people money Lowest price Maintaining a well know brand name Improving live employees How is Walmart realizing this goal? What is the strategy? Cost leadership & market penetra.on Reaching goals: greeters, decrease shopliVing What is the basis on which Walmart builds its compe..ve advantage? Superior informa.on technology How is Walmart decentralized? Each store is an investment center Some sort of business unit organiza.on structure Managers are responsible for internal opera.ons of a Walmart store ( improving service and opera.ons) Though a lot of opera.ons remain more or less centralized, such as marke.ng, distribu.on Decentraliza.on: giving responsibility to lower level managers. Provision of suacient material and formal resources to execute that authority. Assignment of accountability and responsibility for the quality of decision making. Advantage: faster decision making, training them to be in the future in the board. Types: func.onal, business unit, matrix Challenges: managers don’t automa.cally understand, agree, or have the resources to meet The goals and strategies developed by higher level managers. Problem solu9on ques9ons 37 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng 1a think of at least one way to further decentralize Walmart and explain why this may beneZt the company b. think of challenges Walmart may face when implemen.ng your sugges.on, how can they tackle these challenges 2. think of at least one way to further centralize Walmart and explain why this may beneZt the company Prac9cum 2 Goal: ethical + sustainable What need the planet needs to ]ourish. 14 goals. future Zt. Saves money. What makes you diQerent How do you think the goals and CSR strategy of the body shop contribute to crea.ng shareholder value in the short and long run more people are trying to be sustainable. Companies that also do this will be interes.ng for the people that want shares. Goals: support community fair trade Defend human right Against animal tes.ng Ac.ve self esteem Protect the planet Give three examples of stakeholders and explain how the Zve core values are importance to them 1. Customers: more customers want good products that. Animal tes.ng. Protec.ng the planet 2. Society: if you want to do something for the planet, the society will speak highly about you. 3. Supplier: body shop reviews them. They need to be able to implement those core values also otherwise body shop wont work with the,. BeneZ.ng from fair trade. What kind of strategy does the body shop currently have? Select and mo.vate one op.on from each of the lists below: d. Single industry, related diversigZcia.on, unreletaed e. Prospector, defender, analyser, reactor f. Low cost, diQeren.a.on, cost cum diQeren.a.on, stuck in the middle 1. Related industry: they aren’t only focused on skin scare, they also have other stuQ like products for the hair. 38 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng 2. Prospector: they were one of the Zrst to go for sustainability and they are also looking for new business opportuni.es. + defender 3. DiQeren.a.on: compe..ve advantage. What problems will the body shop face going forward? Name at least three future developments and poten.al threats to the body shops strategy Loreal is the owner  CSR strategy. What should the body shop do to stay a pioneer in the are of csr and stand out from its compe.tors? Mo.vate at least one sugges.on. Keep in mind the stakeholders view and the goals of the organiza.on. The body shop has a high consciousness in terms of corporate social responsibli@y, but a problem may be that it is hard to make sure that everyone in the organiza.on is contribu.ng adequately to the csr goals. Do you think that a mechanis.c or an organiz management control system is most suitable for the bost shop in this regard. Prac9cum 3 Revenue centers: puPng that much in doesn’t mean same output. Hiring someone doesn’t mean that you’re output is going to be more. More money you spend  more output/sales  not true Euro output: main purpose increasing revenue. Input euro, output euro, + rela.onship between two = business unit (Walmart) Not only labor but also the capital employed = investment centers What is the goals of the publishing division and exis.ng store division Selling books to make proZt but also raise the proZle of the bookworm chain. They did this by organizing events which got exposure in local and na.onal press Characterize the form of responsibility center for publishing division and exis.ng store divisions and why - Publishing division: engineers expense center, if the amount of money that put in is more, they can publish more books. Related input and output but output not in euro. - GePng revenues as high as possible, keeping cost low  = investment center - Store division: proZt center, input in euros (buying books) and the output is selling books. Related to each other. Could also be a investment center if there was capital involved. Both investments centers Measured in monetary terms 39 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Characterize the form of responsibility center for the cafes given the two alterna.ve ways of organizing cafes 1. Exis.ng store division, it will be part of the store division that is why it will be a proZt center.(proZt)  suppor.ng the book sell so not proZt but cost center.= discre.onary expense center =.me in the store. = answer is proZt center. Book sell is higher. 2. Makin central corporate unit: making a new division proZt center ( investment center) Which form of responsibility center is the best alterna.ve to pursue in light of elanort purpose with crea.ng the cafes Purpose of the cafes: keeping the customers and earning more money. The best form of the responsibility center is proZt center. Making proZt center: they could sperate themselves from the book store. Not looking at the company as a whole. Manager accountable for contribu.on margin, controllable proZt, investment decisions. Not taxes, currency ]uctua.ons. How does the bookstore need to be restructured for the cafes to become proZt centers? What extra responsibili.es should be awarded to the café (managers)? What are the advantages and disadvantaged of doing this? Link your answer with the concept eaciency and eQec.veness By overall comparison, do you think this restructuring has merit for the bookstore ? why? Prac9cum 4 Out of the pocket cost= variabele costs. When resourcing decisions for the x73 materials is in the best of interest of c. Division C  21600 – 9000 = 12600  no selling no extra costs. d. Division B  140.000 – 50.000= 90.000  0, no selling from div b to A s.ll zero e. Division A  340.000-26.300 (conversion costs) – 72000- 140.000 = 101.700 340.000-72.000-100.500- 26.300 = 141.200  Calculate the contribu.on margin of eacht : verkoopprijs – veraibele kosten  in case of internal sales  in case of external sales d) healthcare inc its en.re 12.600 + 90.000 + 101.700= 204.300 0+/0+ 141.200 = 141.200 40 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng what is the bandwidth of the transfer price of the monitors being sold by division B to division A in order for this internal sale to take place minimum 50.000 (no opportunity costs) maximum 105.000 (market price, next available product) what is the minimum transfer price of parts being sold by division C to div. B in order for this internal sale to take place 9000 -> no opportunity cost + variable cost which condi.ons need to be sa.sZed for the various divisions to act in the best interest of the company target price: 340.000 cost other comp: 72.000 conversion cost: 144.000-117.700 = 26.300 manufacturing cost 105.000 variable 50.000 produce 70% capacity currently 90% to overcome goal incongruence problems paul halper.n suggests to mandate division A to buy his products. What are the advantages and disadvantages of manda.ng internal sourching in this case> what should mr. fePnger do what changes could be made in order to overcome the goal incongruence problems? You can think of c. organizing the company in a diQerent way d. changing the incen.ve system. Evalua.on criteria of one or more of the three divisions. Tutorial 5 Short term Knancial  can hurt long 9me Knancial measurement. Balanced scorecard: vision and strategy has impact on the these 4  customer perspec9ve, innova9on and learning perspec9ve, Knancial perspec9ve, internal business perspec9ve Purpose of the change in bonus cheme The director had concerns because the opera.ng proZt measure was to narrow. It was focused on the opera.ng proZt. 41 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng And now half year.me with delivery.me  now also focused on customer sa.sfac.on. Not only the Znancial measurement. New scheme more focus on long term Calcultate the bonus earned by the manager of Surgical instrument division and ultrasound diagnos9c equipment. 1e en 2e Surgical : Opera.ng proZt 46200 95,4% on.me  2000 Sales return 450/42.000 x 100% =1,07%  50% of excess sales return  30 excess. Redcuse 15000 Scrap: 1% of 4620 proZt = 4,62  -4900 excess Customer sa.sfac.on below 90  -5000 46,2 + 2-15 – 4,9-5= 23.3 46 27,2 53,6 2e On.me: 97.3 - +2000 Sales return 420/44000  + 5000 Patent 1000 Scrap  45-44= -1 Customer sa.sfac.on -5000 On.me 98.2 - + 2000 291/ 28600 - + 5000 Patent 4000 Scrap  39.7- 34,2= -5.5 Custom -5000 One.me 94,6 - 0 289/29000  + 5000 Patent 8000 Scrap  no excess Custom: 0 How does this change in bonus scheme in]uence the manager choice Is there any evidence hat the new plan has produced. 42 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng Extrinsic mo.va.on and intrinsic mo.va.on Extrinsic mo.va.on tends to crowd out giving extrinsic mo.va.on can lower the intrinsic mo.va.on. How do you think that the new bonus scheme incuences the managers intrinsic and extrinsic mo9va9on ( use the mo9va9onal crowding theory) EOects. Crowding in out. Link to case. What are you sugges9ons for further improvements to be made this bonus systems. Address strong and weak traits of the new bonus system Tutorial 5 How It diOers from regular produc9on organiza9ons from a control perspec9ve ? - Produc.on organiza.ons you can control by looking at the output, it easier to measure. But with universi.es this is not possible, because how are you going to measure it. Input and output measurement is hard. - Regular produc.on organiza.ons you can store the product, but with educa.on it is delivered immediately. Produc.on + consuming at the same.me. - Regular produc.on organiza.ons, inves.ng in capital related to the goal. For example building or machines, you can produce more but with universi.es isn’t it related. What kind of responsibility center was it before the change into proKt centers? Is the change appropriate. -computers: discre.onary expense center: quart of the.me used for administra.ve work. There is no rela.onship with the input and the output, computers were there for educa.onal and research experience  proZt center is not appropriate. Argue for engineered expense center. Amount of computers. - library: kind of research and development  discre.onary expense center  now proZt center. - facul.es: already a proZt center? - giVs: revenue center: not crea.ng much, trying to maximize revenue. -athle.cs department: engineered expense center - maintenance: engineered expense center: how many things Zxed. Goals Erasmus: High quality academic World class research Rankings Interna.onaliza.on Diversity & inclusion 43 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen?  Stuvia - Koop en Verkoop de Beste Samenvattingen Advanced management accoun.ng The goals of an university are less reliant on invested capital How to achieve these goals What role does capital play?  How do we achieve high quality educa.on and high quality research How to control these professionals? How to measure performance eQec.vely of these professionals Universi.es can in]uence ranking. Is this a strategic choice. How to translate this to the organiza.on Goal incongruence  Faculty management : on what do the focus  top management 44 Gedownload door: spdlqj3663 | [email protected] ¤ 912 per jaar Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. extra verdienen? Powered by TCPDF (www.tcpdf.org)