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ACCT 465 Final: 465 cheet

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University of Calgary
ACCT 465
Philip Beaulieu

ABC/TOC-5 OH: costs that cant be feasibly traced back directly to units of output - indirect costs all ongoing business expenses not including or related to direct labor, direct materials or third-party expenses that are billed directly to customers. TRAD VS ACB: tradition OH allocation —> TOTAL OH COST / TOTAL EXPECTED HRS —> just one single application rate thats common to all products usual DLH Its VERY arbitrary nocause and effect but just easy to do for costing purposes Its not helpful to figure out if u should keep/drop-> has a lot of fixed cost ABC - goal is to eliminate OH by making all costs direct/traceable. aims to make the process less arbitrary thrrocess mapping and setting up several cost drivers For ex: Activity centre (Bottling) —> Cost driver (cases)—> Product (Gin) TOC vs, ACB TOC approach (theory of constraints) - dm treated as VC and all other mfg costs= fixed uses throughput margin per unit of constraining resource to guide prod printing decision VS. ABC that allocates all costs to products with different cost dri vers it is assumed that in the short-run production capacity is fixed and cannot be readily changed. This creates bottlenecks orocnstraints. This context brings the assumptions of the TOC to life. In the long run, however, more costs become variable, especially when spending and consumption are brought into alignment. This reinforces the assumptionsunderling ABC. These methods arebasedon different sets of assumptions with separate time horizons; thus, claims that one approach is superior over the should be abandoned. Cont. to indirect activities: the article using a combined approach (toc and abc) so this indicates the reduction of indirect activities expenditures that would've taken place in order to justify dropping the product line. This tries to ensure that product lines that should be retained aren't dropped but also aren't retained based solely o n its ability to cover raw material and constraint opportunity cost as done by TOC approach TOC —> has 3 measurements: 1) throughout- rate at which company generate money thru sales 2) inventory- $ invested in purchasing things it intends to sell 3) operational expense - $$ system spends to turn inventory into throughput TRANSFER: Comparable uncontrolled price -prices reported in a transaction are comparable with prices for similar tangible goods in an arm's length transaction. Relies on a direct comparison of prices and is applicable only when the goods are standard enough to be sold in an open market. violate the controllability principle? -With elimination of negotiation, lack of autonomy in profit centers to determine revenues it essentially eliminates the negotiation aspect. this lackof negotiation power can be harmful. ex. BL manager explained how he felt discouraged to enter chinese mkt with one type of semiconductor si nce the mfg transfer price induced too high a price. having been allowed to negotiate he coulda reduced his cost to enter the mkt motivation for BEPS- TP- biggest area in tax litigation. since fees can be maneuvered to reduce taxes, rules requrelated parties to complete transactions asif they were arms length.. this is why BEPS actions were created: WHAT IS IT?-tax planning strategies that exploit these gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity. BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises (MNEs).Estimates conservatively indicate annual losses of anywhere from 4 - 10% of global corporate income tax (CIT) revenues, i.e. USD 100 to 240 billion annually. ACTION 8: Intangible assets- best things to game for transfer prices. Aims to reduce abuses of transfer pricing forintangible assets Intellecy, including patents and copyrights , Misallocation of profits is hard to prevent for these assets ACTION 9: Aims to reduce abuses based on contractual (mis-)allocation of risks ACTION 10: Miscellaneous areas of transfer pricing abuses Lean Prime example: returns do not correspond to the level of activity undertaken by the funding Unusual- Manufacturing firm used lean accounting – 12 yrs ago. Weird because admin/product costs- company tossed together, There is someOH allocation, but not a lot and no allocations per product - ACTION 13: Requires documentation on transfer pricing, including: A “master file” with high-level Internal decisions is no OH allocation – ideal ;The income statements look strange. information Tax authorities in all those countries get the master file DM price vary - favourable by buying cheaper materials DM quantity variance - cheaper materials might Country by country = highest level of detail have failing quantities —> they are essentially fighting one another —> BAD Unless the accountants understand the way that lean works, in the worst case it seems to them that —> These actions already leading to higher number of audits and TP is 60% of them in lean produces losses, not efficiencies. In a typical case, they cannot see the cost foreign countries advantages cost acct its promoters warned that it would not be a goo d tool for OPMGMT. KPMG engaged in it .. fine imposed for 465 mil. EY has paid like 123 mil of fines Too many vital decisions are based on standard cost accounting, which obscures the true - TP- Deals with the valuation of goods/serv traded b/w profit or inv centres in decontrol operational picture. orgs Principles of value stream acct: • specify value - from the standpoint of the customer - intermediate mkt- between selling/buying div - selling div wants the price to be high, • identify all steps in value stream - for each product fas and eliminate non value added steps viceversa - Alternative TP —> • focus on flow- within the value streams remaining steps - 1) Cost based —> variable + markup (rarely used) OR full cost + markup (mostly used) • lets customers pull value from the next upstream activity - 2) Mkt based - The preferred option if poss- BEST ONE • pursue perfection through continuous improvement - 3) Negotiated TP ADJUSTMENTS REQUIRED TO STANDARD ABSORP COSTING: • Stop allocating all OH to units of product MIN TP = outlay cost (variable cost) + opportunity cost (lost cm on outside sales) • track costs of materials assigned to value stream —> NOT REALLY USED IN PRACTICE - opp cost doesn't matter if u have excess capacity —> this formula leads to correct • support costs like supplies (a type of oH) using a value stream red card decisions from shareholders perspective • only allocation= facility costs allocated by area occupied • utilities may be metered to each value stream Arms length transfer prices so firms cant plan taxes- tax rules • all labour tracked to value streams— even CSR, acct etc TO meet tax laws—> Usually includes: FMV,fullCostplus markup,profitsplit(usually for • costs NOT tracked by job/product. requires reconciliation for financial reporting partnership), resale minus (fmv - markup)
evidence of negotiations- has tobe really high qual ity – for • LEBANON GASKET COMPANY: TRAD TO LEAN Do trad accounting principles have value in lean environment? à No, as, the goal of the plant's mass tax purposes - under scrutiny byCRA cause of all the tax planning - gotta do transactions as if at arms length production process was to achieve the lowest possible cost per unit by maximizing employee and - multinational corp—> if they transfer @ cost—> violate arms length criteria equipment productivity. The goal of the plant's lean approach is to deliver customer-driven value. For production- units of production were scheduled based on a forecast of expected customer demand To satisfy tax codes of many countries, transfer prices may violate principles of responsibility and then processed in large batches to minimize changeover costs. Work -in-process inventory was and management accounting, like: stored as needed in between work stations. Supervisors administered strong oversight to ensure that 1) Controllability principle- talked about in first q front-line workers met productivity standards. For inventory- Resources are organized in a manner that mirrors the linked set of activities that deliver products to customers. Units of production are pulled 2) Relevant information- Fixed costs were included in uniform profit mark-ups and margins through manufacturing cells in a one-piece flow in response to actual customer orders. Cross-trained 3) Use different numbers for different purposes- Again, uniform profit mark-ups cell workers are empowered to collaborate with one another to continuously improve performance and margins within the cell. Raw materials are frequently replenished by a limited number of long-term suppliers through the use of visual cues called kanban cards. ex: silver wheaton case—> TP issue: Financials- a lean company has benefits tp calculating method such as value stream cost analysis - provides financing to mining companies and in returnbuys their gold at heavy discount which shows how productively costs are incurred etc whereas absorption costing income stmt treats all - reports income thru foreign subsidiaries and doesn't pay CDN tax kinds of VC and fixed OH as product costs. - CRA thinks its earnings should be taxed according to TP rules Pros of tax comp. TP—> saved time and simplified process DMP= actual quan purch * (actual p-std p) DM quan= std pric*(actual quan-std quan); FOH bdg var= actual FOH – bdgt FOH ; FOH volume= foh app rate*(bdgt dl hrs– applied dl hrs) 3 sub systems: ALTERNATIVE DEF OF MGMT CONTROL SYSTEM Measure performance Reward perf Partition decision rights Lean calc: Return on sales= value stream profit or op income /sales - COMES DOWN TO ETHICS: Lord tomlin- if u can find ways to pay less taxes- do it a hidden cost, or implicit tax, accompanies corporate income taxes: economicallyharmful decisions that violate the principles of responsibility. accounting Does the intent (as opposed to explicit requirements) of transfer pricing rules matter? FRAUD-2 The fraud triangle explains factors that have to be present before someone commits fraud . Contracting theory: 1) NEEDS - direct/indirect ex. pressure to meet target 2) OPPORTUNITY- perception that low prob of getting caught 3) before overhead costs huge - cause measured with single cost driver RATIONALIZATION- emps mental process of making the action fit within personal code of conduct —> the ends justify the à if forecasts erroneous —> planning ineffective —> strategy/MCS means. ex “they don't pay me enough”- rationzalixation is what often results in fraud—> as most people (90%) commit implementation weak situational fraud, 5 -10% never anything, 5-10% always scheming. —> mostly always employees u trust so make sure u have - IN practice- lucky if u can get a goodness of fit measrue-regression of 0.5- 50% à good internal controls in place – USE THE TRIANGLE TO FIGURE OUT POTENTIAL 3 KINDS: COMMITTED BY1) outsiders 2) management 3) employees Time framesà comtracts expire @ diff times within a single planning Employee fraud: 2 components : —> 1) intentional deception 3) personal gain (monetory/keeping job)
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