Class Announcements Service Learning Assignment: Schedule a meeting with Danika Leblanc ( firstname.lastname@example.org) prior to contacting your organization email@example.com Ensure that I am included in your meeting with the client organization Final Exam 7:00pm April 11, 2014 Leadership Conferences: 1) KPMG Executive Look March 26, 2014 www.kpmgfit.cawww.kpmgfit.ca 2 ) Deloitte Leadership Conference Information Session Wednesday, March 5 – 5:00 to 6:00pm Schwartz 205
Class Objectives 1. Understanding management control systems as a mechanism for management and control 2. Modifying behaviour through the management control system 3. Management control systems in a decentralized organization
Belanger & Sequin : Context A boat and inboard engine manufacturer Three divisions: Engine – concentrated on diesel single engine for the last 5 years; capacity of 8000 hours per year (2 hours per boat) Boat –labour intensive operation; operated below planned production last year because sales projections were 950 orders lower; capacity is 200,000 DLH Sales – sole Canadian distributor for new Fujiama sailboats; want to capture growth in recreational boating with a new 20 ft fiberglass sport boat Falling profits have reduced ROA to 9.3% overall Resentment is growing among divisions
Belanger & Sequin : Issues 1) Assess Divisional Profit Transfer price between divisions 2) Impact on Overall Profitability Impact of Fujiama sailboat (1,500) Impact of 20 foot fiberglass sport boat (1,250) 3) Assessment of Management Control System - Evaluation System Responsibility centre designation –Investment Centre Evaluation metrics – Return on Assets (ROA)
Belanger & Sequin: Transfer Price Options for setting Transfer Price: Current price - $4,100.00 Market price - $5,000.00 Capacity is 8000 hours/ 2 hours per engine is 4,000 Net market prices - $ 4,490 Selling price $5,000 – commission $510 = $4,490 Variable cost - $2,200 DM $800 + DL $1,000 + VOH $400 = $2,200
1. Belanger & Sequin : Profit and ROA by Division (Exhibit #1)
1. Belanger & Sequin : Engine Division (Exhibit #2) 1. What profit if sell all 4000 to external market? 2. What profit if sell only current level externally?
1.Belanger & Sequin : Boat Division (Exhibit #3) 1. What profit if transfer price was $2,200 2. What profit if sales level was as anticipated 1,750 (800 actual + 950 expected additional) Use $4,100 transfer price
3. Belanger & Sequin: Assessment of Evaluation System Responsibility centre designation Investment Centre Any internal transfer of engines and boast is determined by the sales division estimates of the potential market Evaluation metrics ROA Pretax divisional income divided by assets controlled by the division
3. Belanger & Sequin: Assessment of Evaluation System Each division is evaluated on ROA Engine – ROA is 16.5% Commission ($510/engine) on external sales – 4,200 units No commission on internal sales – 800 units Transfer pricing – breaking even on internal sales Boat – ROA is (10.7%) No commission - internal sales only No outside sales – determined by Sales Sales – ROA is 12.4% Commission on boats, higher commission on Fujiama Commission on BSL greater than Fujiama
Class Objectives - Revisited 1. Understanding management control systems as a mechanism for management and control 2. Modifying behaviour through the management control system 3. Management control systems in a decentralized organization
Midterm Results Average: 50.88/70 (73%) Hi: 71.5/70 Lo: 33.5/70 Comments: Did not answer question(s) Misunderstanding what is being asked Provide evidence or discussion for your opinions/conclusions; do not assume
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