MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS
CHAPTER 22
MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS
LEARNING OBJECTIVES
1. Describe a management control system and its three key properties
2. Describe the benefits and costs of decentralization
3. Explain transfer prices and four criteria used to evaluate them
4. Calculate transfer prices using three different methods
5. Illustrate how market-based transfer prices promote goal congruence in perfectly competitive markets
6. Avoid making suboptimal decisions when transfer prices are based on full cost plus a markup
7. Understand the range over which two divisions negotiate the transfer price when there is unused capacity
8. Construct a general guideline for determining a minimum transfer price
9. Incorporate income tax considerations in multinational transfer pricing
CHAPTER OVERVIEW
Chapter 22 examines management control systems of organizations with emphasis on the role of a subsystem, that of the accounting information system. In Chapter 6 the concept of management control systems was introduced through the budgeting process. The three key properties of a management control system are described in this chapter but studied in three different chapters: (1) alignment with strategy—Chapter 13, (2) fitness with organizational structure—Chapter 22, and (3) performance of managers and employees—Chapter 23.
The goal of a management control system is improving the collective decisions within an organization in an economically feasible manner. Throughout the text the importance of providing relevant and reliable information to decision makers via the accounting information system has been emphasized. Again that purpose is illustrated using transfer pricing in a decentralized organization as a way that accountants provide information to improve managers’ decisions.
This chapter progresses from a notation of a key property of the management control system—“designed to fit the
MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS
LEARNING OBJECTIVES
1. Describe a management control system and its three key properties
2. Describe the benefits and costs of decentralization
3. Explain transfer prices and four criteria used to evaluate them
4. Calculate transfer prices using three different methods
5. Illustrate how market-based transfer prices promote goal congruence in perfectly competitive markets
6. Avoid making suboptimal decisions when transfer prices are based on full cost plus a markup
7. Understand the range over which two divisions negotiate the transfer price when there is unused capacity
8. Construct a general guideline for determining a minimum transfer price
9. Incorporate income tax considerations in multinational transfer pricing
CHAPTER OVERVIEW
Chapter 22 examines management control systems of organizations with emphasis on the role of a subsystem, that of the accounting information system. In Chapter 6 the concept of management control systems was introduced through the budgeting process. The three key properties of a management control system are described in this chapter but studied in three different chapters: (1) alignment with strategy—Chapter 13, (2) fitness with organizational structure—Chapter 22, and (3) performance of managers and employees—Chapter 23.
The goal of a management control system is improving the collective decisions within an organization in an economically feasible manner. Throughout the text the importance of providing relevant and reliable information to decision makers via the accounting information system has been emphasized. Again that purpose is illustrated using transfer pricing in a decentralized organization as a way that accountants provide information to improve managers’ decisions.
This chapter progresses from a notation of a key property of the management control system—“designed to fit the