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©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 11
Introduction to Management AccountingIntroduction to Management Accounting
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 22
Management Controlin Decentralized Organizations
Introduction to Management Accounting
Chapter Chapter 1010
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 33
From 1986 companies revenues increased from $1 billion to over $15 billion
During same period foreign earnings increased from 25% to 63%
What are the keys to success when a company goes global?
Nike decided to delegate decision making to the local market level
One result of this decision was the signing of race car driver Michael Schumacher in Germany
Chapter focuses on management control systems in decentralized organizations
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 44
Decentralization
The delegation of freedom to makedecisions is called decentralization.The delegation of freedom to makedecisions is called decentralization.
The lower in the organization thatthis freedom exists, the greater
the decentralization.
The lower in the organization thatthis freedom exists, the greater
the decentralization.
LearningLearningObjective 1Objective 1
The process by which decision making is concentrated within a particular location
or group is called centralization.
The process by which decision making is concentrated within a particular location
or group is called centralization.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 55
Costs and Benefits
Benefits of decentralization:Benefits of decentralization:
Lower-level managers have the bestinformation concerning local conditions.
Lower-level managers have the bestinformation concerning local conditions.
It promotes management skills which,in turn, helps ensure leadership continuity.
It promotes management skills which,in turn, helps ensure leadership continuity.
Managers enjoy higher status from beingindependent and thus are better motivated.
Managers enjoy higher status from beingindependent and thus are better motivated.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 66
Costs and Benefits
Costs of decentralization:Costs of decentralization:
Managers may make decisions that arenot in the organization’s best interests.Managers may make decisions that arenot in the organization’s best interests.
Managers also tend to duplicate servicesthat might be less expensive if centralized.that might be less expensive if centralized.
Managers also tend to duplicate servicesthat might be less expensive if centralized.that might be less expensive if centralized.
Costs of accumulating and processinginformation frequently rise.
Costs of accumulating and processinginformation frequently rise.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 77
Costs and Benefits
Managers in decentralized units may wastetime negotiating with other units about goods
or services one unit provides to the other.
Managers in decentralized units may wastetime negotiating with other units about goods
or services one unit provides to the other.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 88
Middle Ground
Many companies find that decentralizationworks best in part of the company, whilecentralization works better in other parts.
Many companies find that decentralizationworks best in part of the company, whilecentralization works better in other parts.
Decentralization is most successfulwhen an organization’s segments arerelatively independent of one another.
Decentralization is most successfulwhen an organization’s segments arerelatively independent of one another.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 99
Segment Autonomy
If management has decided in favorof heavy decentralization, segment
autonomy, the delegation of decision-making power to managers of segments
of an organization, is also crucial.
If management has decided in favorof heavy decentralization, segment
autonomy, the delegation of decision-making power to managers of segments
of an organization, is also crucial.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 1010
Responsibility Centers and Decentralization
Design of a management control system shouldconsider two separate dimensions of control:
Design of a management control system shouldconsider two separate dimensions of control:
Responsibilities
11
Autonomy
22
LearningLearningObjective 2Objective 2
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 1111
Responsibility Centers and Decentralization
Profit centersProfit centers DecentralizationnDecentralizationn
These are entirely separate conceptsand one can exist without the other.These are entirely separate conceptsand one can exist without the other.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 1212
Responsibility Centers and Decentralization
All control systems are imperfect.All control systems are imperfect.
The choice among systems should bebased on which one will bring more
of the actions top management seeks.
The choice among systems should bebased on which one will bring more
of the actions top management seeks.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 1313
Motivation, Performance, and Rewards
Criteria and Choices when DesigningCriteria and Choices when Designinga Management Control Systema Management Control System
Goal Goal CongruenceCongruence
Goal Goal CongruenceCongruence
ActionsActionsActionsActionsPerformancePerformance
MeasuresMeasuresPerformancePerformance
MeasuresMeasuresRewardsRewardsRewardsRewards
Feedback
Motivational criteriaMotivational criteria
ManagerialManagerialEffortEffort
ManagerialManagerialEffortEffort
Feedback
Choice of Responsibility Choice of Responsibility Centers and Incentives Centers and Incentives
LearningLearningObjective 3Objective 3
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 1414
Motivation, Performance, and Rewards
Incentives. . .Incentives. . .
Performance-based rewards that enhance
managerial effort toward organizational goals.
Performance-based rewards that enhance
managerial effort toward organizational goals.
RewardsRewardsMotivational Criteria
Motivational Criteria
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 1515
Motivation, Performance, and Rewards
You get what you measure!You get what you measure!
Therefore, accounting measures,which provide relatively objective
evaluations of performance,are important.
Therefore, accounting measures,which provide relatively objective
evaluations of performance,are important.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 1616
Agency Theory, Performance, Rewards, and Risks
Agency theory deals with contracting betweenan organization and the managers that it hires
to make decisions on its behalf.
Agency theory deals with contracting betweenan organization and the managers that it hires
to make decisions on its behalf.
IncentiveIncentive RiskRiskCost of measuring
performanceCost of measuring
performance
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 1717
Measures of Profitability
Profitability does not meanthe same thing to all people.
Profitability does not meanthe same thing to all people.
Is it net income?Income before taxes?
Net income percentage based on revenue?Is it an absolute amount?
A percentage?
Is it net income?Income before taxes?
Net income percentage based on revenue?Is it an absolute amount?
A percentage?
LearningLearningObjective 4Objective 4
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 1818
Return on Investment
ROI = Income ÷ InvestmentROI = Income ÷ Investment
ROIROI ==Income
RevenueIncome
Revenue ××Revenue
InvestmentRevenue
Investment
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 1919
Return on Investment
Division A ROI: = Income ÷ Investment $200,000 ÷ $500,000 = 40%
Division A ROI: = Income ÷ Investment $200,000 ÷ $500,000 = 40%
Division B ROI: = Income ÷ Investment $150,000 ÷ $250,000 = 60%
Division B ROI: = Income ÷ Investment $150,000 ÷ $250,000 = 60%
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 2020
Capital charge is the cost of capitalmultiplied by the amount of investment..
Capital charge is the cost of capitalmultiplied by the amount of investment..
Residual Income
RI tells you how much a company’safter-tax operating income exceeds
what it is paying for capital.
RI tells you how much a company’safter-tax operating income exceeds
what it is paying for capital.
RI is defined as after-tax net operatingincome less a capital charge.
RI is defined as after-tax net operatingincome less a capital charge.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 2121
Economic Value Added
Economic value added (EVA) = Adjusted after-tax operating income– Cost of invested capital (%)× Adjusted average invested capital
Economic value added (EVA) = Adjusted after-tax operating income– Cost of invested capital (%)× Adjusted average invested capital
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 2222
ROI or Residual Income?
Why do some companies prefereconomic profit (or EVA) to ROI?Why do some companies prefereconomic profit (or EVA) to ROI?
Under ROI, the message is go forth andmaximize your rate of return, a percentage.
Under ROI, the message is go forth andmaximize your rate of return, a percentage.
Under EVA, the message is go forth and maximizeeconomic profit, an absolute dollar amount.
Under EVA, the message is go forth and maximizeeconomic profit, an absolute dollar amount.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 2323
Invested Capital
To apply either ROI or residual income,both income and invested capitalmust be measured and defined.
To apply either ROI or residual income,both income and invested capitalmust be measured and defined.
Total assets Total assets employed Total assets less current liabilities Stockholders’ equity
Total assets Total assets employed Total assets less current liabilities Stockholders’ equity
LearningLearningObjective 5Objective 5
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 2424
Valuation of Assets
Should values be based on historical costor some version of current value?
Should values be based on historical costor some version of current value?
Practice is overwhelmingly in favor of usingnet book value based on historical cost.net book value based on historical cost.
Practice is overwhelmingly in favor of usingnet book value based on historical cost.net book value based on historical cost.
Most companies use net book value incalculating their investment base.
Most companies use net book value incalculating their investment base.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 2525
Transfer Prices
The price that one segment charges anothersegment of the same organization for a
product or service is a transfer price.
The price that one segment charges anothersegment of the same organization for a
product or service is a transfer price.
LearningLearningObjective 6Objective 6
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 2626
Purpose of Transfer Pricing
Why do transfer-pricing systems exist?Why do transfer-pricing systems exist?
Management wants to createperformance measurement systems.
Management wants to createperformance measurement systems.
Decisions that maximize a segment’sprofit should also maximize theprofits of the entire company..
Decisions that maximize a segment’sprofit should also maximize theprofits of the entire company..
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 2727
Purpose of Transfer Pricing
Multinational companies use transferpricing to minimize their worldwide
taxes, duties, and tariffs.
Multinational companies use transferpricing to minimize their worldwide
taxes, duties, and tariffs.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 2828
Transfer-pricing Systems
1. Market-based transfer prices2. Cost-based transfer prices
a. Variable Costb. Full cost (possibly pus profit)
3. Negotiated transfer prices
1. Market-based transfer prices2. Cost-based transfer prices
a. Variable Costb. Full cost (possibly pus profit)
3. Negotiated transfer prices
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 2929
Market-Based Transfer Prices
Using the market price as a transfer price will generally lead to the desired goal
congruence and managerial effort.
Using the market price as a transfer price will generally lead to the desired goal
congruence and managerial effort.
In this case, the market price is equal tothe variable cost plus opportunity cost.In this case, the market price is equal tothe variable cost plus opportunity cost.
If a market price exists, use it.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 3030
Market-Based Transfer Prices Drawbacks
Market prices are not always available for items transferred internally.
Market prices are not always available for items transferred internally.
Imperfectly competitive markets exist. Imperfectly competitive markets exist.
When market prices don’t exist, most companies resort to cost-based transfer prices.
When market prices don’t exist, most companies resort to cost-based transfer prices.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 3131
Variable-Cost Pricing
This transfer pricing system ismost appropriate when theselling division forgoes no
opportunity when it transfersthe item internally.
This transfer pricing system ismost appropriate when theselling division forgoes no
opportunity when it transfersthe item internally.
Cost-based transfer prices lead todysfunctional decisions - decisions in
conflict with the company’s goals.
Cost-based transfer prices lead todysfunctional decisions - decisions in
conflict with the company’s goals.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 3232
Full-Cost Pricing
This transfer pricing system includes not onlyvariable cost but also an allocation of fixedcosts (and, if included, the profit mark-up.)It is implicitly assumed that the allocation
is a good approximation of the opportunity cost.
This transfer pricing system includes not onlyvariable cost but also an allocation of fixedcosts (and, if included, the profit mark-up.)It is implicitly assumed that the allocation
is a good approximation of the opportunity cost.
Dysfunctional decisions arise with full-cost transfer prices when the selling segment has
opportunity costs that differ significantly from the allocation of fixed costs and profit.
Dysfunctional decisions arise with full-cost transfer prices when the selling segment has
opportunity costs that differ significantly from the allocation of fixed costs and profit.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 3333
Negotiated Transfer Prices
Companies heavily committed to segmentautonomy often allow managers
to negotiate transfer prices.
Companies heavily committed to segmentautonomy often allow managers
to negotiate transfer prices.
Virtually any type of transfer pricing policycan lead to dysfunctional behavior – actionstaken in conflict with organizational goals.
Virtually any type of transfer pricing policycan lead to dysfunctional behavior – actionstaken in conflict with organizational goals.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 3434
The Need for Many Transfer Prices
The “correct” transfer price depends onthe economic and legal circumstances
and the decision at hand.
The “correct” transfer price depends onthe economic and legal circumstances
and the decision at hand.
Organizations may have to make trade-offsbetween pricing for congruence and
pricing to spur managerial effort.pricing to spur managerial effort.
Organizations may have to make trade-offsbetween pricing for congruence and
pricing to spur managerial effort.pricing to spur managerial effort.
State fair-trade laws and national antitrustacts can also influence transfer pricing.
State fair-trade laws and national antitrustacts can also influence transfer pricing.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 3535
Multinational Transfer Pricing Example
A high-end running shoe produced by an IrishNike division with a 12% income tax rate.
A high-end running shoe produced by an IrishNike division with a 12% income tax rate.
It is transferred to a division in Germany with a 40% income tax rate.
It is transferred to a division in Germany with a 40% income tax rate.
An import duty equal to 20% of the price of the item is imposed by Germany.
An import duty equal to 20% of the price of the item is imposed by Germany.
Full unit cost is $100, and variable cost is$60 (either transfer price could be chosen).
Full unit cost is $100, and variable cost is$60 (either transfer price could be chosen).
LearningLearningObjective 8Objective 8
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Multinational Transfer Pricing Example
Which transfer price should be chosen?Which transfer price should be chosen?
Tax authorities allow either variable- orfull-cost transfer prices.
Tax authorities allow either variable- orfull-cost transfer prices.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 3737
Multinational Transfer Pricing Example
Income of the Irish division is $40 higher:12% × $40 = ($4.80) higher taxes
Income of the Irish division is $40 higher:12% × $40 = ($4.80) higher taxes
Income of the German division is $40 lower:40% × $40 = $16 lower taxes
Income of the German division is $40 lower:40% × $40 = $16 lower taxes
Import duty paid by German division:20% × $40 = ($8)
Import duty paid by German division:20% × $40 = ($8)
Net savings = $3.20 Net savings = $3.20
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 3838
Management by Objectives
MBO describes the joint formulation bya manager and his or her superior of a
set of goals and plans for achievingthe goals for a forthcoming period.
MBO describes the joint formulation bya manager and his or her superior of a
set of goals and plans for achievingthe goals for a forthcoming period.
The manager’s performance is thenevaluated in relation to these
agreed-upon budgeted objectives.
The manager’s performance is thenevaluated in relation to these
agreed-upon budgeted objectives.
LearningLearningObjective 9Objective 9
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 3939
Budgets, Performance Targets, and Ethics
Many of the troublesome motivationaleffects of performance evaluation
systems can be minimized bythe astute use of budgets.
Many of the troublesome motivationaleffects of performance evaluation
systems can be minimized bythe astute use of budgets.
The desirability of tailoring a budgetto particular managers cannot
be overemphasized.
The desirability of tailoring a budgetto particular managers cannot
be overemphasized.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 4040
Budgets, Performance Targets, and Ethics
Using budgets as performancetargets also has its danger.
Using budgets as performancetargets also has its danger.
Companies that make meetinga budget too important can
motivate unethical behavior.
Companies that make meetinga budget too important can
motivate unethical behavior.
©2008 Prentice Hall Business Publishing, ©2008 Prentice Hall Business Publishing, Introduction to Management AccountingIntroduction to Management Accounting 14/e,14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 Horngren/Sundem/Stratton/Schatzberg/Burgstahler 10 - - 4141
End of Chapter 10
The EndThe End
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