Extras from notes

Question 1

Accounting rate of return

Answer 1

(Average Annual op profit before depreciation)/ Annual investment ((original PLUS resale) /2)

Question 2

Profitability index

Answer 2

NPV/ initial time 0 investment

Note initial investment includes working capital and savings from any sold old machinery

Question 3

points on standard costing system

Answer 3

compares actual cost to standard cost
highlights variance
seeks detailed explanation for why and targets improvements
often used in manufacturing where margines are low and efficiency very important

Question 4

Balance Score Card origins

Answer 4

• Johnson and Kaplain 1978: Relevance lost: the rise and -
• fall of managerial accounting
• ‘information too late, too aggregated, too distorted to be relevant’
• led to lots of literature and birth of strategic management accounting
• improves corporate performance by aligning it with corporate strategy

Question 5

Good KPIs

Answer 5

intrinsically linked to financial performance, automatically lead to it.

Question 6

for each KPI

Answer 6

have goal, objectives, targets, initiatives

Question 7

examples of BS

Answer 7

Tesco steering wheel, novo-nordisk, durham police force

Question 8

3 ways to value asset base

Answer 8

historical
net book value
current cost

Question 9

Return on Investment formula

Answer 9

Profit before HO charges, interest and tax divided by one of:

1. value of net assets
2. capital employed in divisional operations

or sales/ net assets * profit/sales

whichever chosen, need to stick to for use

Question 10

Transfer Pricing definition

Answer 10

Monetary value for which goods and services are exchanged between different responsibility centres of the same organisation/ group of companies

Question 11

Ideal TP?

Answer 11

variable cost of production - Hirschleifer 1956

Question 12

3 points on caluclating

Answer 12

you set it to influence behaviour
no external accounting guidelines
matter of internal company policy

Question 13

Market Based pricing

Answer 13

oppurtunity cost of selling division assuming it is operating at full capacity
interdivisional conflicts potentially arrise
can save on distribution costs etc
selling division do not forego income

Question 14

Cost based TP

Answer 14

if operating below full capacity innaprorpiate to sell at market price as not losing any profit
no incetive for selling div if at variable price
nominal contribution can be added but if passed on to consumer makes product uncompetitive
no incentive to control costs as just passed on

Question 15

Negotiated TP

Answer 15

works best when external market so have choice
increases autonomy
can lead to conflict and arbitration

Question 16

Administered TP

Answer 16

follows policy
consistent so reduces conflict
undermines autonomy
sub economic performance as a whole

Question 17

Parmalat Scandal 2003

Answer 17

italian multinational with carrebean subsidaries found billions of reported dollars to be non existent

Question 18

Survey on estimates

Answer 18

2007 by Mckinsey, 2500 senior managers interviewed

estimates overestimated sales forecasts overestimated in 50% projects, 19% went ahead when they shouldnt

Question 19

Pyramid of Purpose

Answer 19

Mission
Vission
Objectives
Strategy formulation
Strategy Implementation
Day to day targets and activities 
Budgets and resources form base