ACCT208 Lecture Notes - Lecture 11: Transfer Pricing
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18 Apr 2018
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Means that we delegate responsibility as low in the organization chart as we can hold individuals accountable for their decisions. Compare actual costs to budget costs (ch8,9 and 10) Segmented i/s and comparing actual profit to budgeted. Objective: minimize cost; maximize revenues& maximize roi (return on investment) Managers are responsible for revenues, expenses & purchase and use of long term assets. Measure: return on )nvestment (cid:523)(cid:498)ro)(cid:499)(cid:524) and residual )ncome. Average operating assets (every asset used in operating the business) Want to get greatest profit earned per dollar you have invested in co (div or department). Ways to improve your roi: (1) numerator: increase noi: increase sp; decreasing operating expenses; increase sales volume. (2) denominator: sell off excessive operating assets- decrease unused assets on the book. Noi that an investment center earns above the minimum rate of return on its operating assets. Objective: maximize the total amount of residual income, not return on investment.
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