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Managerial Accounting

In: Business and Management

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CHAPTER 22
MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING,
AND MULTINATIONAL CONSIDERATIONS

22-1 A management control system is a means of gathering and using information to aid and coordinate the planning and control decisions throughout the organization and to guide the behavior of its managers and employees. The goal of the system is to improve the collective decisions within an organization.

22-2 To be effective, management control systems should be (a) closely aligned to an organization's strategies and goals, (b) designed to fit the organization's structure and the decision-making responsibility of individual managers, and (c) able to motivate managers and employees to put in effort to attain selected goals desired by top management.

22-3 Motivation combines goal congruence and effort. Motivation is the desire to attain a selected goal specified by top management (the goal-congruence aspect) combined with the resulting pursuit of that goal (the effort aspect).

22-4 The chapter cites five benefits of decentralization:
1. Creates greater responsiveness to local needs
2. Leads to gains from faster decision making
3. Increases motivation of subunit managers
4. Aids management development and learning
5. Sharpens the focus of subunit managers

The chapter cites four costs of decentralization:
1. Leads to suboptimal decision making
2. Results in duplication of activities
3. Focuses managers’ attention on the subunit rather than the company as a whole
4. Increases costs of gathering information

22-5 No. Organizations typically compare the benefits and costs of decentralization on a function-by-function basis. For example, companies with highly decentralized operating divisions frequently have centralized income tax strategies.

22-6 No. A transfer price is the price one subunit of an organization charges for a product or service...

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