MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS

4428 Words Dec 10th, 2013 18 Pages
CHAPTER 22

MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS

LEARNING OBJECTIVES

1. Describe a management control system and its three key properties

2. Describe the benefits and costs of decentralization

3. Explain transfer prices and four criteria used to evaluate them

4. Calculate transfer prices using three different methods

5. Illustrate how market-based transfer prices promote goal congruence in perfectly competitive markets

6. Avoid making suboptimal decisions when transfer prices are based on full cost plus a markup

7. Understand the range over which two divisions negotiate the transfer price when there is unused capacity

8. Construct a general guideline for determining
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Motivation: desire to attain a selected goal (the goal-congruence aspect) combined with resulting pursuit of that goal (the effort aspect)

• Goal congruence: when individuals and groups work toward achieving the organization’s goals—managers working in their own best interest take actions that align with the overall goals of top management

• Effort: exertion toward achieving a goal

ii. Incentives: a variety of rewards

Do multiple choice 1. Assignment after L. O. 2.

II. Organization structure and decentralization

A. Management control system must fit organization structure

B. Decentralization raises additional set of management control issues

1. Total decentralization: minimum constraints and maximum freedom for managers at the lowest levels of an organization to make decisions

a. Decentralization: freedom for managers at lower levels of the organization to make decisions—empowers managers and employees of subunits to take decisive actions

b. Autonomy: the degree of freedom to make decisions—greater the freedom, greater autonomy

2. Total centralization: maximum constraints and minimum freedom for managers at the lowest levels of an organization to make decisions

Learning Objective 2:
Describe the benefits and costs of decentralization

C. Benefits and costs of decentralization

1. Benefits of decentralization as advocated by supporters

a. Creates greater

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