Management Control System

Chapter 5 Case 5-4. Abrams Company Case Overview Abrams has a division for each product group parts. Each division led by vice president and general manager who is expected to reach a certain target ROI. Each products division has a sales department OEM. The rest of the product produced by the division of the product sold to the AM division. AM division operates several warehouses parts distribution have company in the U.S. and overseas markets. Each manufacturing plant in the third division of the products have annual targets to be achieved. Each sale of OEM products division traced to the factory that makes parts. The target ROI based budget income divided by net assets beginning of the year (calculated by total assets minus current liabilities). For the plant manager, the award is given on earnings variance factory. In this case any adjustment variance gross margin generated from sales volume to the AM division. The manager was not given a bonus of the profits from sales to the division AM and was not given a penalty if the actual purchase AM division is less than the amount approved by the AM division when the budget is approved by the annual earnings of the factory upper management. There are three things to be thinking of upper management, namely: There is always strife on the transfer price of the parts were sold by product division to the AM division, Management feels that the product divisions often treated AM division as a consumer which is not free, and Upper level management felt the excess inventory throughout the year in each division. Analysis and Discussion The three things that concern the company's senior management Abrams are: The first problem is the transfer pricing dispute between the three product divisions with AM divisions, especially on parts that are sold exclusively to the AM division. This is one of the weaknesses in the regulation of the business unit as a profit center. Disputes will increase because of the debate over the appropriate