Management Control System : Accounting Tools

Better Essays

Management control system are accounting tools that gather information and use it to evaluate the performance of different organizational resources like human, physical, financial and also the organization as a whole considering the organizational strategies. In other words, the managemant control sytstem is aligned with the organization 's performance. Management control system can be formal or informal. However, organization uses different accounting tool to capture their performance. The balance scoredboard is deemed to be a good management control tool when use effectively with a thought out transfer price system. Transfer pricing can be defined as the setting of the price for goods and services sold between controlled (or related) …show more content…

When tangible products are involved in a controlled transaction the cost plus method focuses on the related manufacturing company as the tested party in the transfer pricing analysis. In a situation where services are rendered the cost plus method may be used. The cost plus method starts with the costs incurred by the provider of property or services in a controlled transaction for property transferred or services rendered to the related buyer. A suitable cost plus mark up is then added to this cost inorder to make a suitable profit in terms of the functions performed, risks assumed, assets utilized and market state. The Comparable Uncontrolled Price Method (CUP) evaluates the arm’s-length character of a controlled transaction by comparing the price in relation to the conditions to the price and conditions of similar transactions between the taxpayer and an unrelated party (“internal CUP”), or between two unrelated parties (“external CUP”). However if it is possible to find a comparable uncontrolled transactions, the CUP method is the most direct and reliable way to apply the arm’s-length principle. It helps to determine the prices for the related party transactions. It should be noted that when determining whether controlled and uncontrolled proceedings can be compared to each other, the requirement of utilizing the CUP method is extremely high. As a result , in practice, the CUP method is not normally applied unless the products or

Get Access