ACCOUNTING at Universität St. Gallen | Flashcards & Summaries

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Lernmaterialien für ACCOUNTING an der Universität St. Gallen

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Problems with Market-oriented Transfer Prices

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  • Problem I: intermediate product may not have a market price
  • Problem II: Each Business Unit has own performance goals -> Receiving division might buy intermediate products on market instead of other business divisions for the same price because of e.g. timing advantages
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Describe the death-spiral problem in pricing & how to solve it

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  • If fixed costs are allocated based on actual volume and a period with excess capacity occurs: more fixed costs are allocated to each unit
    • Leads to rising prices / unit which leads to less sales which in turn leads to larger allocation of fixed costs etc.
  • Solution: Using Total capacity rather than actual production volume to allocate fixed costs 
    • = Standard costs
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Tasks of controlling over time - 4 positions

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  • Business Partner: idea generator; ensures fit btw. organisation & control
  • Navigator: optimization & decision support; strategy implementation
  • Reporter: Planning, Reporting
  • Technical expert: Cost accounting; calculations
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Transfer Prices - Definition

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  • Valuations for internally produced services (intermediate products, services, etc.) that are procured from other, arithmetically delimitable business areas. 
  • The business areas can be both individual cost centers and legally independent group companies. 
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Advantages of market-oriented Transfer Prices (in perfect markets)

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  • Promote goal congruence (Vereinbarkeit) at market price
    • Because no incentive to sell to market (transferprice < Market price) or buy at marktet (transfer price > market price)
  • Motivate management effort
    • eg at cost plus: producing division no effort of being efficient
  • Serve to evaluate economic viability and profitability of each division individually
    • Because both = chance to be profitable (if one division is not profitable at marsket price in long term -> might leave market)
  • Ensure the autonomy of the divisions
    • Because in order to max. overall profit, top management might force selling division to sell to receiving division instead of to the market when using variable cost based transfer prices eg
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IPOOI Model - Abbreviation for:

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Input, Process, Output (∑=Productivity), Outcome (∑=Profitability), Impact (∑=Performance) 

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Ferreira & Otley Performance management systems framework: 12 question's main topics (all relevant aspects of PMS):

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1. Vision & Mission?

2. Key success factors & communication?

3. Organization structure? (Impact on design & use of PMS)

4. Strategies and plans? (required to ensure success)

5. Key performance measures?

6. Target Setting? (what level of performance needed)

7. Performance evaluating processes?

8. Reward systems? (motivational factor)

9. Information flows systems? (eg feedback; to support PMS)

10. Type of use of information?

11. Changes in PMS? (adapted?)

12. PMS strength and coherence? (Links btw. components of PMS)

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PMS: Performance Prism - 5 perspectives:


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  • Stakeholder Satisfaction
    • Who are central stakeholders and what do they demand?
  • Stakeholder Contribution
    • What do we want and need from our stakeholders? 
  • Strategies
    • to meet the requirements of the stakeholders but also those of the company at the same time
    • Check if implementation possible & how to communicate
  • Processes
    • Identification & management of processes required for successful strategy implementation
    • Determine fitting KPIs, guidelines etc
  •  Capabilities
    • =combination of several company components (employees, qualification & knowledge, technologies, infrastructure etc)
    • What capabilities needed to carry out the processes?
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4 Criterias of a good BSC

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A good BSC:

  • tells story of strategy by presenting sequence of cross-perspective cause-and-effect relationships of goals
  • helps to communicate strategy (translation into set of understandable operational goals)
  • Must motivate managers to take action
  • Limits the number of measures (only most relevant)
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Performance measures - Free Cash Flow growth 

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  • Shows liquidity growth of a company 
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Definition: Performance Management

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Performance Management 

- coordinates the efforts of people through measurement practices and behavior influence 

- in order to better align operations with the strategy 

- to accomplish the organizational goals effectively and efficiently


(=multidimensional measurement and control systems for steering purposes)

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Planning - Definition

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  • a systematic, future-oriented examination and determination of goals, measures, means and ways of achieving future goals
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Q:

Problems with Market-oriented Transfer Prices

A:
  • Problem I: intermediate product may not have a market price
  • Problem II: Each Business Unit has own performance goals -> Receiving division might buy intermediate products on market instead of other business divisions for the same price because of e.g. timing advantages
Q:

Describe the death-spiral problem in pricing & how to solve it

A:
  • If fixed costs are allocated based on actual volume and a period with excess capacity occurs: more fixed costs are allocated to each unit
    • Leads to rising prices / unit which leads to less sales which in turn leads to larger allocation of fixed costs etc.
  • Solution: Using Total capacity rather than actual production volume to allocate fixed costs 
    • = Standard costs
Q:

Tasks of controlling over time - 4 positions

A:
  • Business Partner: idea generator; ensures fit btw. organisation & control
  • Navigator: optimization & decision support; strategy implementation
  • Reporter: Planning, Reporting
  • Technical expert: Cost accounting; calculations
Q:

Transfer Prices - Definition

A:
  • Valuations for internally produced services (intermediate products, services, etc.) that are procured from other, arithmetically delimitable business areas. 
  • The business areas can be both individual cost centers and legally independent group companies. 
Q:

Advantages of market-oriented Transfer Prices (in perfect markets)

A:
  • Promote goal congruence (Vereinbarkeit) at market price
    • Because no incentive to sell to market (transferprice < Market price) or buy at marktet (transfer price > market price)
  • Motivate management effort
    • eg at cost plus: producing division no effort of being efficient
  • Serve to evaluate economic viability and profitability of each division individually
    • Because both = chance to be profitable (if one division is not profitable at marsket price in long term -> might leave market)
  • Ensure the autonomy of the divisions
    • Because in order to max. overall profit, top management might force selling division to sell to receiving division instead of to the market when using variable cost based transfer prices eg
Mehr Karteikarten anzeigen
Q:

IPOOI Model - Abbreviation for:

A:

Input, Process, Output (∑=Productivity), Outcome (∑=Profitability), Impact (∑=Performance) 

Q:

Ferreira & Otley Performance management systems framework: 12 question's main topics (all relevant aspects of PMS):

A:

1. Vision & Mission?

2. Key success factors & communication?

3. Organization structure? (Impact on design & use of PMS)

4. Strategies and plans? (required to ensure success)

5. Key performance measures?

6. Target Setting? (what level of performance needed)

7. Performance evaluating processes?

8. Reward systems? (motivational factor)

9. Information flows systems? (eg feedback; to support PMS)

10. Type of use of information?

11. Changes in PMS? (adapted?)

12. PMS strength and coherence? (Links btw. components of PMS)

Q:

PMS: Performance Prism - 5 perspectives:


A:
  • Stakeholder Satisfaction
    • Who are central stakeholders and what do they demand?
  • Stakeholder Contribution
    • What do we want and need from our stakeholders? 
  • Strategies
    • to meet the requirements of the stakeholders but also those of the company at the same time
    • Check if implementation possible & how to communicate
  • Processes
    • Identification & management of processes required for successful strategy implementation
    • Determine fitting KPIs, guidelines etc
  •  Capabilities
    • =combination of several company components (employees, qualification & knowledge, technologies, infrastructure etc)
    • What capabilities needed to carry out the processes?
Q:

4 Criterias of a good BSC

A:

A good BSC:

  • tells story of strategy by presenting sequence of cross-perspective cause-and-effect relationships of goals
  • helps to communicate strategy (translation into set of understandable operational goals)
  • Must motivate managers to take action
  • Limits the number of measures (only most relevant)
Q:

Performance measures - Free Cash Flow growth 

A:
  • Shows liquidity growth of a company 
Q:

Definition: Performance Management

A:

Performance Management 

- coordinates the efforts of people through measurement practices and behavior influence 

- in order to better align operations with the strategy 

- to accomplish the organizational goals effectively and efficiently


(=multidimensional measurement and control systems for steering purposes)

Q:

Planning - Definition

A:
  • a systematic, future-oriented examination and determination of goals, measures, means and ways of achieving future goals
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