Ma1 Villamor Finals - Module

COLLEGE OF SCIENCE AND TECHNOLOGY
Cagamutan Norte, Leganes, Iloilo - 5003

Tel. # (033) 396-2291 ; Fax : (033) 5248081
Email Address: svcst_leganes@yahoo.com
COO – FORM 12
SUBJECT TITLE: MANAGERIAL ACCOUNTING

INSTRUCTOR: ANNA MARIE P. VILLAMOR, CPA
SUBJECT CODE: MA1
FINALS MODULE
TOPIC 1: PERFORMANCE EVALUATION
LEARNING OBJECTIVES:
At the end of this topic, the students are expected to:
1. Determine the different evaluation measures.

2. Prepare a segmented income statement using the contribution format.
3. Compute return on investment and residual income and understand its strengths and
weaknesses.
NOTES:
A. FINANCIAL PERFORMANCE MEASURES
PERFORMANCE EVALUATION
To understand segmental analysis, you need to know about the concepts of variable cost, fixed
cost, direct cost, indirect cost, net income of a segment, and contribution to indirect expenses.
Next, we describe each concept.
Costs may be either directly or indirectly related to a particular cost object. A cost object is a
segment, product, or other item for which costs may be accumulated. In other words, a cost is
not direct or indirect in and of itself. It is only direct or indirect in relation to a given cost object.
A direct cost (expense) is specifically traceable to a given cost object. An indirect cost (expense)
is not traceable to a given cost object but has been allocated to it. Accountants can designate a
particular cost (expense) as direct or indirect by reference to a given cost object. Thus, a cost
that is direct to one cost object may be indirect to another. For instance, the salary of a segment
manager may be a direct cost of a given manufacturing segment but an indirect cost of one of
the products manufactured by that segment. In this example, the segment and the product are
two distinct cost objects.
Because a direct cost is traceable to a cost object, the cost is likely to be eliminated if the cost
object is eliminated. For instance, if the plastics segment of a business closes down, the salary
of the manager of that segment probably is eliminated. Sometimes a direct cost would remain
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even if the cost object were eliminated, but this is the exception rather than the rule.
An indirect cost is not traceable to a particular cost object; therefore, it only becomes an expense
of the cost object through an allocation process. For example, consider the depreciation expense
on the company headquarters building that is allocated to each segment of the company. The
depreciation expense is a direct cost for the company headquarters, but it is an indirect cost to
each segment. If a segment of the company is eliminated, the indirect cost for depreciation
assigned to that segment does not disappear; the cost is simply allocated among the remaining
segments. In a given situation, it may be possible to identify an indirect cost that would be
eliminated if the cost object were eliminated, but this would be the exception to the general rule.
Because the direct costs of a segment are clearly identified with that segment, these costs are
often controllable by the segment manager. In contrast, indirect costs become segment costs
only through allocation; therefore, most indirect costs are noncontrollable by the segment
manager. Be careful, however, not to equate direct costs with controllable costs. For example,
the salary of a segment manager may be direct to that segment and yet is non-controllable by
that manager because managers cannot specify their own salaries.
When preparing internal reports on the performance of segments of a company, management

often finds it is important to classify expenses as fixed or variable and as direct or indirect to the
segment. These classifications may be more useful to management than the traditional
classifications of cost of goods sold, operating expenses, and non-operating expenses that are
used for external reporting in the company’s financial statements. As a result, many companies
prepare an income statement for internal use with the format shown below
a. Manufacturing Contribution Margin – sales minus variable manufacturing costs

b. Contribution Margin - manufacturing margin minus variable non- manufacturing costs; or
sales minus all the variable costs.
c. Short-Run Performance Margin – contribution margin minus controllable or discretionary
fixed costs.
d. Segment Margin – short-run performance margin minus direct (traceable) committed,
non-controllable fixed costs.
e. Operating Income – segment margin minus allocated common costs.
𝐼𝑛𝑐𝑜𝑚𝑒
f. Return On Investment -
𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
 Income amount may be the:
 Operating income or earnings before interest and tax (EBIT)

 Net income
 Net income adjusted for price level changes
 Cash flow.
 The investment base may be the:
 Total assets
 Total assets employed or used by the segment in its operations (excluding
idle assets)
 Working capital (current assets less current liabilities) plus other assets.
 Stockholder’s equity
g. Residual Income – the excess of income earned by an investment center over the desired
income or return in invested capital.
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Income earned by, or expected income of an investment XX

center
Less desired income (Investment x Desired Rate of Return) XX
Residual income XX
Desired Rate of Return is usually the cost of capital.
h. Economic Value Added – a more specific version of residual income. It represents the
segment’s true economic profit because it measures the benefit obtained by using
resources in a particular way.
After tax operating income (EBIT x (1 – Tax Rate)) XX

Less desired income (after tax WACC x (total assets – current XX
liabilities))
Economic Value Added (EVA) XX
Equity Spread – calculates equity value creation of shareholder’s value.
ES = Beginning Equity Capital x (return on equity – percentage cost of equity)
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡ℎ𝑒 𝑠𝑡𝑜𝑐𝑘 𝑝𝑟𝑖𝑐𝑒 + 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

Total shareholder return =
𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑠𝑡𝑜𝑐𝑘 𝑝𝑟𝑖𝑐𝑒
Market Value Added
Market value of equity (shares outstanding x market price) XX

Less equity supplied by shareholders XX
Market Value Added XX
i. Delivery Cycle Time (or Customer Response Time) – length of time between receiving an
order from a customer to the time when the completed order is delivered to such customer.
j. Throughput or Manufacturing Cycle time – the time required to concert raw materials into
finished product. It is composed of the process time, move time, inspection time, and
queue time.
 Process time – amount of time in which work is actually done on the product.
 Inspection time – amount of time spent to check if the product is not defective.
 Move time – time required to move materials and work in process from one station
to another.
 Queue time – amount of time a product spends waiting to be processed, moved,
inspected, and shipped.
k. Manufacturing Cycle Efficiency – the objective is to reduce or eliminate non- value added
time in the delivery cycle time.
𝑉𝐴𝐿𝑈𝐸 𝐴𝐷𝐷𝐸𝐷 𝑇𝐼𝑀𝐸 𝑂𝑅 𝑃𝑅𝑂𝐶𝐸𝑆𝑆 𝑇𝐼𝑀𝐸

MCE =
𝑇𝐻𝑅𝑂𝑈𝐺𝐻𝑃𝑈𝑇 𝑂𝑅 𝑀𝐴𝑁𝑈𝐹𝐴𝐶𝑇𝑈𝑅𝐼𝑁𝐺 𝐶𝑌𝐶𝐿𝐸 𝑇𝐼𝑀𝐸
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B. PREPARATION OF SEGMENTED INCOME STATEMENT
TOTAL SEGMENT A SEGMENT B
Sales XXXX XXXX XXXX
LESS Variable Manufacturing costs XXXX XXXX XXXX

Manufacturing CM XXXX XXXX XXXX
LESS Variable Non-Manufacturing Cost XXXX XXXX XXXX

CONTRIBUTION MARGIN XXXX XXXX XXXX
LESS controllable Fixed Costs XXXX XXXX XXXX
Short-run, performance margin XXXX XXXX XXXX
LESS Direct, Non-Controllable Fixed Cost XXXX XXXX XXXX
Segment Margin XXXX XXXX XXXX
LESS Common Costs Allocated to Segment XXX XXXX XXXX
Operating Income XXXX XXXX XXXX
EXERCISES:
1. The following information pertains to product produced by the men’s belt division of Leather
Goods Corporation:
Per Unit
Selling Price P 150
Manufacturing Costs:
Prime Costs 75
Variable Factory Overhead 15
Fixed Factory overhead (80,000) 8
Selling and Administrative costs:
Variable 18
Fixed (60,000) 6
During the period, the Division produced 10,000 units and sold 9,000 units, both as
budgeted. There was no beginning and ending work- in process inventories, and there was
no beginning finished goods inventory during the period.
There was no difference between the total budgeted and actual fixed costs. Variable
manufacturing costs vary with production while variable selling costs vary with sales. Central
administration costs are allocated to the different divisions of the company. For this period,
central administration cost allocated to Men’s Belt division amounted to P 150,000.
a. How much is the Men’s Belt Division’s manufacturing margin?

b. Men’s Belt Division’s contribution margin was?
c. Assume that 40% of the Division’s fixed costs is controllable by the division manager.
How much was the division’s short-run performance margin?
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d. Assume that 40% of the Division’s fixed costs is controllable by the division manager.
How much was the division’s segment margin?
e. How much was the division’s operating income during the period?
2. Quinnett Corporation has two divisions: the Export Products Division and the Business
Products Division. The Export Products Division's divisional segment margin is $34,300 and
the Business Products Division's divisional segment margin is $86,700. The total amount of
common fixed expenses not traceable to the individual divisions is $95,600.
What is the company's net operating income?
3. Walsh Company has three Stores: X, Y, and Z. During August, the variable expenses in
Store X were P90,000 and the contribution margin ratio was 25%. Store Y had a contribution
margin of P27,000 and a contribution margin ratio of 20%. Store Z had variable expenses
of P120,000 and a variable expense ratio of 60% of sales. For August, Walsh Company's
sales were:
4. Brummitt Corporation has two divisions: the BAJ Division and the CBB Division. The
corporation's net operating income is P10,700. The BAJ Division's divisional segment margin
is P76,100 and the CBB Division's divisional segment margin is P42,300. What is the amount
of the common fixed expense not traceable to the individual divisions?
5. Davison Inc. consists of two districts, A and B. The company as a whole had sales
of$400,000, a contribution margin ratio of 25% and a combined segment margin
totaling$35,000. District A had sales of $90,000 during May, a contribution margin ratio
of45%, and a segment margin of $16,000. If the net operating income of Davison Inc. for
May is $12,000, the traceable fixed expenses in District B must have been:
6. The following information pertains to Quest Company's Gold Division for last year:
Sales ............................................... P 311,000

Variable expenses .......................... P 250,000
Traceable fixed expenses ...............P 50,000
Average operating assets ...............P 40,000
The Gold Division's return on investment is:
7. Last year a company had sales of $400,000, a turnover of 2.4, and a return on investment
of 36%. The company's net operating income for the year was:
8. Cabot Company had the following results during June: net operating income, $2,500;
turnover, 4; and ROI, 20%. Cabot Company's average operating assets were:
9. Given the following data:
Return on investment ................................. 25%

Sales ........................................................... P100,000
Average operating assets ........................... P40,000
Turnover .................................................... 2.5
Minimum required rate of return ............... 18%
Margin on sales ......................................... 10%
The residual income would be:
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10. The following information relates to last year's operations at the Bread Division of Rison
Bakery, Inc.:
Residual income ............................P 12,000

Net operating income .................... P 60,000
Sales ...........................................P 300,000
Average operating assets ............. P 400,000
What was the Bread Division's minimum required rate of return last year?
11. The following year-end data pertain to Adan Corporation:
EBIT P 80,000
Current Assets P 800,000
Non-current Assets P 3,200,000
Current Liabilities P 400,000
Non-current P 1,000,000
Liabilities
Adan Corporation pays an income tax rate of 30%. Its weighted average cost of capital is
10%. What is Adan Corporation’s Economic Value Added (EVA)?
12. A company conducted a study on time it spent in processing customer orders. Average time
figures were recorded below:
Wait time – 5 days Move time – 1 day

Process time – 20 days Queue time – 6 days
Inspection time – 2 days
Required:
a. Compute the delivery cycle time.
b. Compute the throughput time.
c. Compute the manufacturing cycle efficiency (MCE).
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TOPIC 2: TRANSFER PRICING
1. Understand the need for transfer pricing.

2. Identify different transfer pricing schemes.
3. Compute problems involving transfer prices.
NOTES:
A. RATIONAL AND NEED FOR TRANSFER PRICE
Profit centers and investment centers inside companies often exchange products with each
other. The Pontiac, Buick, and other divisions of General Motors buy and sell automobile parts
from each other, for example. No market exchange takes place, so the company sets transfer
prices that represent revenue to the selling division and costs to the buying division.
A transfer price is an artificial price used when goods or services are transferred from one
segment to another segment within the same company. Accountants record the transfer price
as a revenue of the producing segment and as a cost, or expense, of the receiving segment.
Usually no cash actually changes hands between the segments. Instead, the transfer price is
an internal accounting transaction.
Segments are generally evaluated based on some measure of profitability. The transfer price
is important because it affects the profitability of the buying and selling segments. The higher
the transfer price, the better for the seller. The lower the transfer price, the better for the
buyer.
Ideally, a transfer price provides incentives for segment managers to make decisions not only
in their best interests but also in the interests of the entire company. For example, if the selling
segment can sell everything it produces for $100 per unit, the buying segment should pay the
market price of $100 per unit. A seller with excess capacity, however, should be willing to
transfer a product to the buying segment for any price at or above the differential cost of
producing and transferring the product to the buying segment (typically all variable costs).
Transfer Price – the amount charged by one segment of the organization for the goods/ services
transferred/provided to another segment of the same organization.
Rationale and need for a transfer price
 To supply adequate information to motivate managers of the different segments of the

organization to make good economic decisions.
 To supply transparent and useful information that may be used in evaluating the
performance of the business segments.
 To properly distribute economic resources of the organization among the segments or
responsibility center.
 To ensure that the autonomy of the various segments of the organization is protected
and respected.
Factors Considered in Selecting a Transfer Pricing Policy
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 Goal Congruence – a transfer price should permit a segment to operate as an independent

entity and achieve its goals while functioning in the best interest of the organization as a
whole.
 Segmental Performance – the selling segment should not lose income by selling within
the company.
 Negotiation – the buying segment should not incur greater costs by buying within the
company. Hence, if the product or service could be purchased outside the company, the
buying segment should be allowed to negotiate the transfer price.
 Capacity – if the selling segment has excess capacity, it should be used to produce goods
for transfer within the company. If there is no excess capacity, the selling segment should
not incur loss by selling to another segment within the same organization.
 Cost structure – costs to be considered in a transfer price should be analyzed and broken
down into variable and fixed components so that it would be easier to identify relevant
cost items.
 Taxes
Ways of determining transfer prices
Transfer prices may be the:
 Market price if a market for the goods/services exists

 Incremental cost plus opportunity cost to the seller
 Full absorption costs
 Cost plus mark up
 Negotiated transfer price
 Dual transfer price
B. TRANSFER PRICING SCHEMES
Three common approaches to setting transfer prices are as follows:
 Market price approach
Using the market price approach, the transfer price is the price at which the product or
service transferred could be sold to outside buyers. If an outside market exists for the
product or service transferred, the current market price may be a proper transfer price.
 Negotiated price approach
The negotiated price approach allows the managers to agree (negotiate) among
themselves on a transfer price. The only constraint is that the transfer price be less
than the market price, but greater than the supplying division’s variable costs per unit,
as shown below.
Variable Costs per Unit < Transfer Price < Market Price
 Cost approach
Under the cost price approach, cost is used to set transfer prices. A variety of costs
may be used in this approach, including the following:
 Total product cost per unit

 Variable product per unit
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If total product cost per unit is used, direct materials, direct labor, and factory overhead
are included in the transfer price. If variable product cost per unit is used, the fixed
factory overhead cost is excluded from the transfer price. Actual costs or standard
(budgeted) costs may be used in applying the cost price approach. If actual costs are
used, inefficiencies of the producing (supplying) division are transferred to the purchasing
division. Thus, there is little incentive for the producing (supplying) division to control
costs. For this reason, most companies use standard costs in the cost price approach. In
this way, differences between actual and standard costs remain with the producing
(supplying) division for cost control purposes. The cost price approach is most often used
when the responsibility centers are organized as cost centers. When the responsibility
centers are organized as profit or investment centers, the cost price approach is normally
not used.
 The minimum transfer price is the transfer price that would leave the selling division no
worse off if the good were sold to an internal division than if the good were sold to an
external party. This is sometimes referred to as the “floor” of the bargaining range.
 The maximum transfer price is the transfer price that would leave the buying division no
worse off if an input were purchased from an internal division than if the same good were
purchased externally. This is sometimes referred to as the “ceiling” of the bargaining
range.
EXERCISES:
Problem#1:
Additional:
Problem 2:
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Division 1 of Ace Company makes and sells wheels that can either be sold to outside
customers or transferred to Division 2. The following data are available from last month:
Division 1:
Selling price per wheel to outside customers ............................. P50
Variable cost per wheel when sold to outside customers ........... P35
Capacity in wheels ..................................................................... 15,000
Division 2:
Number of wheels needed per month ......................................... 5,000
Price per wheel paid to an outside supplier ................................ P47
a. Suppose that Division 1 sells 7,500 units per month to outside customers. What is the
lowest acceptable transfer price from the viewpoint of the selling division if Division 2
requires 5,000 units per month from Division 1?
b. What is the maximum price per wheel that Division 2 should be willing to pay Division 1
if a transfer were to take place?
c. Suppose that Division 1 sells 11,500 units each month to outside customers. According
to the formula in the text, what is the lowest acceptable transfer price from the viewpoint
of the selling division?
d. If Division 1 sells the wheels to Division 2, Division 1 can avoid $2 per wheel in sales
commissions. Answer question a, b, and c using the additional information.
Problem 3:
Division A of Tripper Company produces a part that it sells to other companies. Sales and cost
data for the part follow:
Capacity in units ........................................ 60,000
Selling price per unit ................................. P40
Variable costs per unit ............................... P28
Fixed costs per unit at capacity ................. P9
Division B, another division of Tripper Company, would like to buy this part from Division A.
Division B is presently purchasing the part from an outside source at P38 per unit. If Division
A sells to Division B, P1 in variable costs can be avoided.
a. Assume that Division A is presently operating at capacity. According to the formula in the
text, what is the lowest acceptable transfer price from the viewpoint of the selling
division? If Division B decided to buy 5000 units to Division A those parts at the minimum
transfer from the viewpoint of seller, how much will be the incremental profit (loss) for
Division A?
b. Assume that Division A has ample idle capacity to handle all of Division B's needs without
any increase in fixed costs and without cutting into outside sales. According to the formula
in the text, what is the lowest acceptable transfer price from the viewpoint of the selling
division? If Division B decided to buy to Division A those parts at the minimum transfer
from the viewpoint of seller, how much will be the incremental profit (loss) for Division
A?
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TOPIC 3: BALANCE SCORECARD
1. Understand the balance score card.

2. Learn how to construct and use a balanced score card.
NOTES:
A. NATURE AND PERSPECTIVES OF BALANCED SCORECARD
The balanced scorecard is a balanced set of measures that organizations use to motivate
employees and evaluate performance. These measures are typically separated into four
perspectives outlined in the following. (Dr. Robert S. Kaplan and Dr. David P. Norton created
the balanced scorecard, and it is actively promoted through their company, Balanced Scorecard
Collaborative.
The balanced scorecard is a set of performance targets and results that show an organization’s
performance in meeting its objectives to its stakeholders. It is a management tool that
recognizes organizational responsibility to different stakeholder groups, such as employees,
suppliers, customers, business partners, the community, and shareholders. Often different
stakeholders have different needs or desires that the managers of the organization must
balance. The concept of a balanced scorecard is to measure how well the organization is doing
in view of those competing stakeholder concerns.
1. Financial. Measures that shareholders, creditors, and other stakeholders use to

evaluate financial performance.
2. Internal business process. Measures that management uses to evaluate efficiency
of existing business processes.
3. Learning and growth. Measures that management uses to evaluate effectiveness
of employee training.
4. Customer. Measures that management uses to evaluate whether the organization
is meeting customer expectations.
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The goal is to link these four perspectives to the company’s strategies and goals. For example,
a high percentage of on-time arrivals is likely an important goal from the perspective of the
customer of an airline. A high percentage of defect-free computer chips is likely an important
goal from the internal business process perspective of a computer chip maker. A high number
of continuing education hours is likely an important goal from the learning and growth
perspective for tax personnel at an accounting firm. Measures from a financial perspective
were covered earlier in this chapter.
B. FINANCIAL AND NON-FINANCIAL PERFORMANCE MEASURES
Companies that use the balanced scorecard typically establish several measures for each
perspective. Table 13.4 "Balanced Scorecard Measures" lists several examples of these
measures.
Financial Internal Learning and Customer
Business Growth
Process
Gross margin Defect-free Hours of employee Customer
ratio rate training satisfaction
(survey)
Return on Customer Employee
assets response time Number of
satisfaction
customer
(survey)
complaints
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Receivables Capacity
turnover utilization Employee turnover Market share
Inventory New product Number of Number of
turnover development employee accidents returned
time products
Traditionally, business organizations have focused on financial results, which mainly have
reflected the shareholders’ interests. In recent years, organizations have shifted attention to
customer issues, such as quality and service, to employees, and to the community.
Measures established across the four perspectives of the balanced scorecard are linked in a
way that motivates employees to achieve company goals. For example, if the company wants
to increase the defect-free rate and reduce product returns, effective employee training and
low employee turnover will help in achieving this goal. The idea is to establish company goals
first, then create measures that motivate employees to reach company goals.
The balanced scorecard has been developed and used in many companies. It primarily has
been used at the top management level to support the organization’s development of
strategies. For example, Kaplan and Norton describe the development of the balanced
scorecard at an insurance company as follows:
Step 1: Ten of the company’s top executives formed a team to clarify the company’s strategy
and objectives to meet responsibilities.
Step 2: The top three layers of the company’s management (100 people) were brought
together to discuss the new strategy and to develop performance measures for each part of
the company. These performance measures became the scorecards for each part of the
business and reflected the company’s desired balance in satisfying different stakeholders.
Step 3: Managers began eliminating programs that were not contributing to the company’s
objectives.
Step 4: Top management reviewed the scorecards for each part of the organization.
EXERCISES:
1. Why do the measures used in a balanced scorecard differ from company to company?
2. Why does the balanced scorecard include financial performance measures as well as
measures of how well internal business processes are doing?
---END OF FINALS MODULE---
References:
Reviewer in Management Advisory Services (RODELIO S. ROQUE,
BSBAA,CPA) Reviewer in Management Advisory Services (FRANKLIN T.
AGAMATA, MBA,CPA) www.investopedia.com
www.toptal.com
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COLLEGE OF SCIENCE AND TECHNOLOGY

Cagamutan Norte, Leganes, Iloilo - 5003

SUBJECT TITLE: MANAGERIAL ACCOUNTING

TOPIC 1: PERFORMANCE EVALUATION

At the end of this topic, the students are expected to:

1. Determine the different evaluation measures.

A. FINANCIAL PERFORMANCE MEASURES

When preparing internal reports on the performance of segments of a company, management

a. Manufacturing Contribution Margin – sales minus variable manufacturing costs

 Income amount may be the:

 Operating income or earnings before interest and tax (EBIT)

 The investment base may be the:

Income earned by, or expected income of an investment XX

Desired Rate of Return is usually the cost of capital.

After tax operating income (EBIT x (1 – Tax Rate)) XX

Equity Spread – calculates equity value creation of shareholder’s value.

ES = Beginning Equity Capital x (return on equity – percentage cost of equity)

𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡ℎ𝑒 𝑠𝑡𝑜𝑐𝑘 𝑝𝑟𝑖𝑐𝑒 + 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

Market Value Added

Market value of equity (shares outstanding x market price) XX

𝑉𝐴𝐿𝑈𝐸 𝐴𝐷𝐷𝐸𝐷 𝑇𝐼𝑀𝐸 𝑂𝑅 𝑃𝑅𝑂𝐶𝐸𝑆𝑆 𝑇𝐼𝑀𝐸

B. PREPARATION OF SEGMENTED INCOME STATEMENT

TOTAL SEGMENT A SEGMENT B

Sales XXXX XXXX XXXX

LESS Variable Manufacturing costs XXXX XXXX XXXX

LESS Variable Non-Manufacturing Cost XXXX XXXX XXXX

LESS controllable Fixed Costs XXXX XXXX XXXX

Short-run, performance margin XXXX XXXX XXXX

LESS Direct, Non-Controllable Fixed Cost XXXX XXXX XXXX

Segment Margin XXXX XXXX XXXX

LESS Common Costs Allocated to Segment XXX XXXX XXXX

Operating Income XXXX XXXX XXXX

a. How much is the Men’s Belt Division’s manufacturing margin?

What is the company's net operating income?

Sales ............................................... P 311,000

The Gold Division's return on investment is:

9. Given the following data:

Return on investment ................................. 25%

The residual income would be:

Residual income ............................P 12,000

11. The following year-end data pertain to Adan Corporation:

Wait time – 5 days Move time – 1 day

TOPIC 2: TRANSFER PRICING

At the end of this topic, the students are expected to:

1. Understand the need for transfer pricing.

A. RATIONAL AND NEED FOR TRANSFER PRICE

Rationale and need for a transfer price

 To supply adequate information to motivate managers of the different segments of the

Factors Considered in Selecting a Transfer Pricing Policy

 Goal Congruence – a transfer price should permit a segment to operate as an independent

Ways of determining transfer prices

Transfer prices may be the:

 Market price if a market for the goods/services exists

B. TRANSFER PRICING SCHEMES

Three common approaches to setting transfer prices are as follows:

 Market price approach

 Negotiated price approach

 Total product cost per unit

TOPIC 3: BALANCE SCORECARD

At the end of this topic, the students are expected to:

1. Understand the balance score card.

A. NATURE AND PERSPECTIVES OF BALANCED SCORECARD

1. Financial. Measures that shareholders, creditors, and other stakeholders use to