Module 1 - Lecture 2 Flashcards
What are the 3 core elements of financial results controls?
1) Financial responsibility centres
2) Formal management processes (planning & budgeting)
3) Motivational contracts
What is a responsibility centre?
Organisation unit headed by a manager with responsibility for a particular set of inputs and/or outputs
What types of financial responsibility centres are there?
1) Cost centre
2) Revenue centre
3) Profit centre
4) Investment centre
What is the purpose of investment centres?
1) To generate maximum profits from the resources available
2) To invest in additional resources when this investment will provide an adequate return
3) Overall, just to maximise return on capital
What are the purposes of transfer pricing?
1) Forces managers to make good economic decisions
2) Provides information for the evaluation of managers
3) Spread profits through company entities/locations
Why is variable cost not used for transfer pricing?
The selling firm makes a loss and the buying firm’s profits are overstated
How could you adjust variable cost so that it can be used for transfer pricing?
include a lump sum fee with the variable cost. This way the selling profit centre can make a profit and also recover its fixed cost.
Would a selling profit centre sell at full cost? Why or why not?
No. They would not as without profit there is no incentive. They would sell at full cost + markup through as this means they can make a profit. However, these prices are not responsive to market conditions.
What are the problems associated with using negotiated prices for transfer pricing?
- Costly (in terms of time)
- May cause conflicts
What are dual rate prices?
A method of transfer pricing. The selling profit centre is credited with the market price while the buying centre only pays the variable cost.
What are the advantages and disadvantages of dual rate prices?
Advantages:
- Provides economic signals for decision making
- Maintains proper information for education purposes
- Ensures internal transactions take place
Disadvantages:
- No incentive for selling centres to negotiate market prices
- Destroys incentive to improve efficiency and productivity for the selling centre as they can just sell internally
What effects has NPM had upon employees and welfare?
Mainly negative effects:
- Increased stress
- Increased workload
- ‘Box ticking- activities
- More adversarial working environment
- Cab provide rational explanation for irrational behaviour
Name some performance management technologies?
- Budgets
- KPIs
- Balanced scorecard
- Lean management
- Manager checklists
