AKUNTANSI MANAJEMEN LANJUTAN
DESENTRALISASI
PENGENDALIAN OPERASIONAL
rowland.pasaribu@gmail.c
PERTEMUAN I, 30 September 2013
REVIEW KONSEP AKUNTANSI MANAJEMEN
AKUNTANSI PERTANGGUNGJAWABAN
DESENTRALISASI DAN HARGA TRANSFER
REVIEW KONSEP
AKUNTANSI MANAJEMEN
Definition of Management
Accounting: IMA
Management accounting is a profession that
involves partnering in management decision
making, devising planning and performance
management systems, and providing expertise
in financial reporting and control to assist
management in the formulation and
implementation of an organization’s strategy.
Managerial Accounting as a Career
Professional Organizations
Institute of Management Accountants (IMA)
Publishes
Management
Accounting
and research
studies.
Administers
Certified
Management
Accountant
program
Develops
Standards of
Ethical
Conduct for
Management
Accountants
Professional Ethics
Ethical business practices build trust and
promote loyal, productive relationships with
customers, employees and suppliers.
Many companies have written codes of ethics
which serve as guides for employees to follow.
Professional Ethics
Competence
Confidentiality
Integrity
Objectivity
Resolution of Ethical Conflict
Professional Ethics
Follow applicable laws,
regulations and standards.
Maintain
professional
competence.
Competence
Prepare complete and clear
reports after appropriate
analysis.
Professional Ethics
Do not disclose confidential
information unless legally
obligated to do so.
Do not use
confidential
information for
personal
advantage.
Confidentiality
Ensure that subordinates do not
disclose confidential
information.
Professional Ethics
Avoid conflicts of interest and
advise others of potential
conflicts.
Do not subvert
organization’s
legitimate
objectives.
Integrity
Recognize and communicate
personal and professional
limitations.
Professional Ethics
Avoid activities that could
affect your ability to perform
duties.
Refrain from
activities that
could discredit
the profession.
Integrity
Communicate unfavorable as
well as favorable information.
Refuse gifts or
favors that
might
influence
behavior.
Professional Ethics
Communicate information
fairly and objectively.
Objectivity
Disclose all information that
might be useful to
management.
Professional Ethics
Resolution of Ethical Conflict
Follow established policies of your organization.
If unresolved or if policy does not exist:
Clarify relevant concepts in a confidential discussion with
an objective advisor to explore possible courses of action.
Discuss problem with immediate supervisor.
Professional Ethics
Resolution of Ethical Conflict
If immediate supervisor is involved in the
unethical behavior, discuss at the next level.
If problem is not resolved, the last resort is to
resign.
Generally, do not communicate ethical conflicts
to outsiders.
Major Themes in Managerial Accounting
Behavioral
Issues
Information
and Incentives
Costs and
Benefits
Managerial
Accounting
Evolution and Adaptation in Managerial
Accounting
Service Vs. Manufacturing
Firms
Emergence of New
Industries
Global Competition
Focus on the Customer
Cross-Functional Teams
Continuous Improvement
Computer-Integrated
Manufacturing
Change
Information and
Communication
Technology
Product Life Cycles
Total Quality
Management
Time-Based Competition
Just-in-Time Inventory
Managerial Accounting in Modern Production
Environments
• Key developments that reshaped Managerial
Accounting include:
– Integrated information systems
– Web hosting
– Just-in-time and lean production
– Total Quality Management
– Theory of constraints
– Benchmarking and continuous improvement
The Goal of Good Management is to Create
Value
• Cost Management is applying the value criteria to every
decision we make, every activity we perform, and every
process we complete.
• Modern accounting systems do not just evaluate good
stewardship but must provide managers with the information
managers need to improve value.
• Management accounting systems are used to enhance both
decision making and management control.
• Management accounting systems do not need to be perfect,
only ‘good enough’ to increase value.
New Management Trends
to Create Value
• Encourage Management Accounting Systems
Redesign, for example.
–
–
–
–
–
–
–
–
Customer focus
Quality focus
Delivery focus
Outsourcing and the virtual company
Communications
Shortening product life cycles
Team development
Deregulation in the service sector
Perubahan Lingkungan Bisnis
Menentukan hal apa saja yang tidak perlu dilakukan,
bagaimana perusahaan harus dikelola dan bagaimana
pekerjaan dilakukan
Beberapa praktek manajemen:
• JIT (Just In Time)
• Manajemen Mutu Total (TQM)
• Rekayasa Ulang
• Teori Kendala (Theory of Constrain/TOC)
JIT (Just In Time)
• Sistem Pengendalian Persediaan dan Produksi JIT:
>> Membeli BB dan memproduksi unit output sesuai
dengan permintaan aktual dari pelanggan
>> Persediaan dikurangi sampai pada tingkat minimum
(bahkan sampai titik nol)
• Dampak JIT (perush. Manufaktur):
>> Efisiensi dan mengurangi biaya (penyimpanan dan
pemesanan) serta meningkatkan efisiensi dan efektifitas
operasi.
Bahan bahan baku yang diterima segera masuk ke proses
produksi, bahan produksi lainnya segera digabungkan
dan dikerjakan, dan produk yang telah jadi segera
dikirimkan kepada pelanggan.
TQM (Total Quality Management)
Perbaikan terus menerus yang memiliki
karakteristik :
>> Fokus pada pelayanan pelanggan
>> Pemecahan masalah secara sistematis dengan
menggunakan tim yang ada di garda depan yang
dibekali dengan salah
satu alat manajemen
>> Penentuan tolok ukur (benchmarking) yang
dilakukan dengan mempelajari
organisasi
terbaik yang ada untuk menjelaskan tugas
tugas tertentu.
Increased emphasis on product quality because goods are produced only as
needed
Total Quality Management (TQM)
- a philosophy of zero defects -
Gambaran utama TQM adalah meningkatkan produktivitas
dengan mendorong penggunaan pengetahuan dalam
mengambil keputusan dan menekan perilaku defensif yang
tidak produktif.
LO 8 Identify trends in management accounting.
Rekayasa Ulang Proses
(Process Reengineering-PR)
Meliputi desain ulang secara menyeluruh proses bisnis dalam rangka
menghilangkan aktivitas yang tidak bernilai tambah dan mengurangi
kemungkinan terjadinya kesalahan. Rekayasa ulang mengandalkan
pada spesialis dari luar perusahaan.
>> Merupakan pendekatan yang lebih radikal dibandingkan TQM
>> Sebagai ganti perbaikan sistem yang dirancang serial dan bertahap.
>> Dalam PR suatu proses bisnis diplot dalam sebuah diagram secara
detail, dikritik dan kemudian dirancang ulang untuk menghilangkan
langkah-langkah yang tidak diperlukan, mengurangi kemungkinan
terjadinya kesalahan dan mengurangi biaya.
Proses bisnis adalah serangkaian tahapan yang harus dilakukan
untuk menjalankan tugas-tugas dalam dalam suatu bisnis.
Teori Kendala
(Theory of Contrains/ToC)
Menekankan pada pentingnya mengelola kendala yang
dihadapai oleh organisasi. Karena kendala adalah sesuatu
yang menghalangi organisasi, proses perbaikan akan efektif
kalau difokuskan pada kendala yang dihadapi
• Teori kendala didasarkan pada pandangan
bahwa manajemen kendala secara efektif
merupakan kunci keberhasilan
Activity-Based-Costing (ABC)
Allocates overhead based on use of activities
Results in more accurate product costing and
scrutiny of all activities in the value chain
Balanced Scorecard
Evaluates operations in an integrated fashion
Uses both financial and non-financial
measures
Links performance measures to overall
company objectives
LO 8 Identify trends in management accounting.
Review Question
Which of the following managerial accounting
techniques attempts to allocate manufacturing
overhead in a more meaningful manner?
a.Just-in-time inventory.
b.Total-quality management.
c.Balanced scorecard.
d.Activity-based costing.
LO 8 Identify trends in management accounting.
The Strategic Approach to Teaching
Management Accounting Topics
—An Introduction
Strategic Cost Management:
Basic Concepts
Strategic decision making is choosing among alternative
strategies with the goal of selecting a strategy, or
strategies, that provides a company with reasonable
assurance of long-term growth and survival
The key to achieving this goal is to gain a competitive
advantage.
Strategic cost management is the use of cost data to
develop and identify superior strategies that will
produce a sustainable competitive advantage.
A Model of the Decision-Making Process
Competitive Advantage
Competitive advantage is the process of creating better
customer value for the same or lower cost than that of
competitors or creating equivalent value for lower cost
than that of competitors.
Customer value is the difference between what a
customer receives (customer realization) and what the
customer gives up (customer sacrifice).
The total product is the complete range of tangible and
intangible benefits that a customer receives from a
purchased product.
Michael Porter: Strategic Positioning
 Cost Leadership—outperform
competitors by producing at the lowest cost,
consistent with quality demanded by the
consumer
 Differentiation—creating value for the
customer through product innovation,
product features, customer service, etc. that
the customer is willing to pay for
Aspects of the
Two Competitive Strategies
Aspect
Basis of competitive
advantage
Cost Leadership
Lowest cost in the
industry
Often, a limited
Product line
selection
Lowest possible cost
with high quality and
Production emphasis
essential product
features
Differentiation
Unique product or
service
Wide variety,
differentiating
features
Innovation in
differentiating
products
Marketing emphasis
Premium price and
innovative,
differentiating
features
Low price
Strategic Positioning
There are three general strategies that
have been identified:
– cost leadership
– product differentiation
– focusing
Strategic Positioning
A cost leadership strategy
happens when the same or
better value is provided to
customers at a lower cost
than a company’s
competitors.
Example: A company might redesign a product so that
fewer parts are needed, lowering production costs and the
costs of maintaining the product after purchase.
Strategic Positioning (continued)
A product differentiation strategy strives to
increase customer value by increasing what the
customer receives (customer realization).
Example: a retailer of computers might offer
on-site repair service, a feature not
offered by other rivals in the local
market.
Strategic Positioning (continued)
A focusing strategy happens when a firm selects or
emphasizes a market or customer segment in which
to compete.
Example: Paging Network, Inc., a paging
services provider, has targeted
particular kinds of customers and is
in the process of weeding out the
nontargeted customers.
Consequences of Lack of Strategic CostManagement Information
 Decision-making based on guess and intuition
 Lack of clarity about direction and goals
 Over time, lack of a clear and favorable perception of the
firm by customers and suppliers
 Incorrect decisions: choosing products,
markets, or
manufacturing processes that are inconsistent with the
organization’s strategy
 For control purposes, cannot link performance effectively
to strategic goals
…
Tools for Integrating Strategy into
Management Accounting
-- The Value Chain
-- Strategy Maps & the Balanced
Scorecard (BSC)
Introducing Strategy
Strategic
Positioning
Strengths
Weaknesses
Value
Chain
Strategy
Map
Balanced
Scorecard
(BSC)
Opportunities
Threats
Value Chain
Refers to all activities associated with providing
a product or service
For a manufacturing firm these include the
following:
LO 8 Identify trends in management accounting.
Industrial Value Chain
The industrial value chain is the linked set of
value-creating activities from basic raw
materials to the disposal of the finished product
by end-use customers.
Fundamental to a value-chain framework is
the recognition that there exist complex
linkages and interrelationships among
activities both within and external to the firm.
Value Chain Analysis:
A Detailed Look at Strategy…
The Value Chain is a linked set of value-adding activities used by an organization to deliver
its value proposition to its customers. It consists of:
o “Upstream” Activities
o Manufacturing/Operations
o “Downstream” Activities
Value-Chain Analysis

Identify value-chain activities
 Develop competitive advantage by:
 Identifying opportunities for adding value for
the customer
 Identifying opportunities for eliminating nonvalue added activities and reducing cost
Understand linkages among suppliers,
the entity, and customers
Internal and External Linkages
There are two types of linkages that must be
analyzed and understood: internal and external
linkages.
Internal linkages are relationships among activities that
are performed within a firm’s portion of the value chain.
External linkages describe the relationship of a firm’s
value-chain activities that are performed with its
suppliers and customers. There are two types: supplier
linkages and customer linkages.
Strategy Maps &
the Balanced Scorecard (BSC)
The BSC and Strategy Map are used to align
the organization’s activities with achieving
strategic goals, using the four perspectives:
• Financial
• Customer
• Internal Processes
• Learning and Growth
vision &
mission
Exceed shareholder
expectations
Financial
Customer
Diversify income
stream
Diversify
customer base
Increase sales
volume
Improve profit
margins
Increase sales to
existing customers
Attract new
customers
Internal
Process
Target profitable
market segments
Develop new
products
Optimize internal
processes
Attract new
customers
Learning
& Growth
Develop
employee skills
Integrate
systems
The Balanced Scorecard (BSC):
Feedback to Strategy
Strategic
Positioning
Value
Chain
Strategy
Map
Balanced
Scorecard
(BSC)
Activity-Based Costing (ABC), RCA,
and TDABC
Evolution of Cost Accounting Systems
Traditional
Costing
Resources
Allocated
to
ABC
(simple &
minimal)
Resources
Consumed
by
Resources
Consumed
by
Activities
Activities
Consumed
by
Cost Objects
ABC
(multidimensional)
Consumed
by
outputs
Cost Objects
channels
Cost
Objects
Users
ABC/M Framework
What Things
Cost
Root
Causes
of Costs
Resource
Costs
Resource
Drivers
Work Activities
Performance
Measures
Activity Cost
Assignment
Cost Objects
Why Things
Cost
Activity
Drivers
•Cost Reduction
•Process
reengineering
•Cost of quality
•Continuous
improvement
•Waste elimination
•Benchmarking
•Design for manufacturing
Better Decision
•Make versus Buy
Making
Organizational Activities and Cost Drivers
Organizational activities are of two types:
structural and executional.
Structural activities are activities that determine the
underlying economic structure of the organization.
Executional activities are activities that define the
processes and capabilities of an organization and thus
are directly related to the ability of an organization to
execute successfully.
Organizational Activities and Drivers
Structural Activities
Building plants
centralization
Management structuring
Grouping employees
Complexity
of unique processes,
Vertically integrating
Selecting and using process
technologies
Structural Cost Drivers
Number of plants, scale, degree of
Management style and
philosophy
Number and type of work units
Number of product lines, number
number of unique parts
Scope, buying power, selling
power
Types of process technologies,
experience
Organizational Activities and Drivers
Executional Activities
Executional Cost Drivers
Using employees
Degree of involvement
Providing quality
Quality management approach
Providing plant layout
Plant layout efficiency
Designing and producing products Product configuration
Providing capacity
Capacity utilization
Operational Activities
Operational activities are day-to-day activities
performed as a result of the structure and
processes selected by the organization.
Examples:Receiving and inspecting incoming parts,
moving materials, shipping products, testing
new products, servicing products, and
setting up equipment.
Organizational and Operational Activity
Relationships
Organizational Activity
(Selecting and using process technologies)
Structural Cost Driver
(JIT: Type of process technology
Operational Driver
(Number of moves)
Operational Activity
(Moving material)
Internal Value Chain
Design
Service
Develop
Distribute
Produce
Market
Exploiting Internal Linkages
An Example:
Assume that design engineers have been told that the number of parts is a significant
cost driver and that reducing the number of parts will reduce the demand for various
activities downstream in the value chain. They plan to reduce the price by per-unit
savings. Currently 10,000 units are produced. The data of the new design and its
effects on demand are given below:
Activity
Material usage
Labor usage
Purchasing
Warranty repair
Cost Driver
# of parts
Labor hours
# of orders
# of defects
CurrentExpected
Capacity
Demand
200,000
200,000
10,000
10,000
15,000
12,500
1,000
800
Demand
80,000
5,000
6,500
500
Exploiting Internal Linkages (continued)
Potential Savings :
Material usage (200,000 - 80,000)$3
$360,000
Labor usage (10,000 - 5000)$12
60,000
Purchasing [$30,000 + $.50(12,500 - 6,500)]
33,000
Warranty repair [($28,000 + $20(800 - 500)]
34,000
Total
$487,000
======
Units
10,000
Unit savings
$48.70
Activity-Based Customer Costing
An Example:
Suppose that the Thompson Company produces precision parts
for 11 major buyers. An activity-based costing system is used to
assign manufacturing costs to products. The company prices
each customer's order by adding order-filling costs to
manufacturing costs and then adding a 20% markup (to cover
any administrative costs plus profits). Order-filling costs total
$606,000 and are currently assigned in proportion to sales
volume (measured by number of parts sold). Of the 11
customers, one accounts for 50% of sales, with the remaining ten
accounting for the remainder of sales. Orders placed by the
smaller companies are also about the same size. Data concerning
Thompson’s customer activity are given on PPT 13-22:
Exploiting External Linkages (continued)
Large
Customer
500,000
2
$3,000,000
303,000
$0.606
Ten Smaller
Customers
500,000
200
$3,000,000
303,000
$0.606
Units purchased
Orders placed
Manufacturing cost
*Order-filling cost allocated
Order cost per unit
*Order-filling capacity is purchased in blocks of 45 (225 capacity), each block costing $40,400; variable order-filling
activity costs are $2,000 per order; thus, the cost is [(5 x $40,400) + ($2,000 x 202)]
Exploiting External Linkage (continued)
Assume that ordering costs are allocated using a new driver:
Units purchased
Orders placed
Manufacturing costs
*Orders-filling costs
Order cost per unit
Large Customer
500,000
2
$3,000,000
6,000
$.012
Ten Smaller Customers
500,000
200
$3,000,000
600,000
$1.20
*Order-filling capacity is allocated using number of orders. The allocation
rate is $3,000 pre order ($606,000/202 orders).
Implications:
By using a new driver, we are drastically reducing the orderingcost per unit of the high volume customer (50% of our business).
This information could assist Thompson in establishing a new
strategy for pricing.
Product Life Cycle Viewpoints
There are three basic views of the product life
cycle:
– Marketing viewpoint
– Production viewpoint
– Consumable life viewpoint
Marketing Viewpoint
Units of
sales
Introduction Growth
Maturity
Decline
Life Cycle Cost Management
Cost Commitment Curve
Life Cycle
Cost %
100
90
90 percent of life-cycle
costs are committed at this
point
75
25
Research Planning
Design
Testing Production Logistics
A Life Cycle Costing Example
Suppose that engineers are considering two new product designs for one of its
power tools. Both designs reduce direct materials and direct labor content
over the current model. The anticipated effects of the two designs on
manufacturing, logistical, and postpurchase activities costs are listed below:
Cost Behavior
Functional-based system:
Variable conversion activity rate:
Material usage rate:
ABC system:
Labor usage
Material usage:
Machining:
Purchasing activity:
Setup activity:
Warranty activity:
Customer repair cost:
$40 per direct labor hour
$8 per part
$10 per direct labor hour
$8 per part
$28 per machine hour
$60 per purchase order
$1,00 per setup hour
$200 per returned unit
$10 per hour
Life Cycle Costing (continued)
Traditional Costing (Overhead allocated by direct labor hours)
Direct materials
Conversion costb
Total manufacturing cost
Units produced
Unit cost
a$8
Design A
$ 800,000
2,000,000
$2,800,000
 10,000
$
280
========
Design B
$ 480,000
3,200,000
$ 3,680,000
 10,000
$
368
========
x 100,000 parts; $8 x 60,000 parts
b$40 x 50,000 direct labor hours; $40 x 80,000 direct labor hours
Life Cycle Costing (continued)
ABC Costing (Overhead allocated by direct labor hours)
Direct materials
Direct labora
Machiningb
Purchasingc
Setupsd
Warrantye
Total product costs
Units productd
Unit cost
Postpurchase costs
a$5
Design A
$ 800,000
500,000
700,000
18,000
200,000
80,000
$2,298,000
 10,000
$
230
$ 80,000
========
Design B
$ 480,000
800,000
560,000
12,000
100,000
15,000
$1,967,000
 10,000
$
197
$ 15,000
========
Classification
Manufacturing
Manufacturing
Manufacturing
Upstream
Manufacturing
Downstream
d$1,000 x 200 setups; $1,000 x 100 setups
x 50 ,000 hours ; $5 x 40,000 hours
b$10 x 25,000 parts; $10 x 20,000 parts
e$200 x 400 defects; $200x 1,000 defects
c$60 x 300 design hours; $60 x 2000 design hours
Target Costing - Example
Assume that a company is considering the
production of a new trencher. Current product
specifications and the targeted market share call
for a sales price of $250,000. The required profit is
$50,000 per unit.
The target cost is computed as follows:
Target cost = $250,000 - $50,000
= $200,000
Target-Costing Model
MARKET SHARE
OBJECTIVE
TARGET PRICE
TARGET PROFIT
TARGET COST
No
PRODUCT AND
PROCESS DESIGN
TARGET COST
MET?
Yes
PRODUCE
PRODUCT
PRODUCT
FUNCTIONALITY
Resource Consumption Accounting (RCA)
Resource consumption accounting (RCA) is an
adaption of ABC that emphasizes resource consumption
by greatly increasing the number of resource cost pools,
which allows more direct tracing of resource costs to
cost objects than an ABC system with fewer cost
centers.
RCA is particularly appropriate for large organizations with
repetitive operations and high-level information
systems such as those provided by SAP, Oracle, and SAS.
Time-Driven ABC (TDABC)
When a substantial amount of the cost of a
company’s activities are in a highly repetitive
process (much like in the RCA example above), the
cost assignment can be based on the average time
required for each activity.
Time-Driven Activity-Based Costing assigns
resource costs directly to cost objects using the cost
per time unit of supplying the resource, rather
than first assigning costs to activities and then from
activities to cost objects.
TDABC Example
TDABC computes the cost per minute of the resources performing
the work activity.
Assume 2 clerical workers paid $45,000 annually perform a certain
activity that is expected to require 17 minutes.
TDABC calculates the total cost as $45,000 x 2 = $90,000; TDABC then
calculates the total time available for the activity as 180,000 minutes
(assuming 30 hours per week with two weeks vacation: 2 workers x
50 weeks x 30 hours x 60 minutes per hour = 180,000 minutes per
year).
The TDAC rate for the activity is $0.50 per minute ($90,000 /
180,000).The cost of a unit of activity is $0.50 x 17 min = $8.50; if the
activity required 20 min, then the allocation would be $.50 x 20 =
$10.
Customer Profitability Analysis
Customer Profitability Analysis
• Customer Relationship Management (CRM):
• Customer Lifetime Value (CLV)
• Customer Equity
Customer Profitability Analysis:
The Whale Curve
The Whale Curve: 80% from the top 20% (or more!)
Cumulative Profits
300 %
100 %
50 %
20%
Most Profitable
100 %
Least Profitable
What Makes for a Profitable Customer?
Profitable and unprofitable customers are distinguished
by the demands they place on the organization
 Less profitable customers







Small order quantities
Special products ordered
Heavy discounting
Unpredictable demands
Delivery times change
High technical support
Slow payment (imputed
interest)
 More profitable customers







Large order sizes
Standard products ordered
Little discounting
Predictable demands
Delivery times standard
Low technical support
On-time payment (imputed interest)
These demands can be estimated
by activity costs and activity cost drivers
Migrating Customers to Higher Profitability –
A Strategic Analysis
Very
Types of Customers
Profitable
High
(Creamy)
Product Mix
Margin
Low
(Low Fat)
Low
High
Cost-to-Serve
78
Very
unprofitable
Customer Relationship Management (CRM)
Requires Strategic Cost Management Data
Who is more important to pursue with the
scarce resources of our marketing budget?
 Our most profitable customers? Our most
valuable customers?
 What is the difference?
 The “customer lifetime value” (CLV) measure is intended to answer this
question.
You are a pharmaceutical supplier:
which customer is more important?
Dentist A
Dentist B
Sales = $750,000
Sales = $375,000
profits = $100,000
profits = $40,000
Age 61
Age 25
Which is more profitable?
Which is more valuable?
Customer Lifetime Value (CLV)
What is it?
The projected economic value of customer relationships during the whole period of the
relationship between the customer and company.
The Measure
The net present value (NPV) of all future profits from that customer; it is a projection,
from when the customer is acquired or from the current date.
Customer Equity
What is it?
The economic value of ALL customer relationships.
The Measure
The sum of the CLVs for all customers.
How Used
Provides a measure of the value of the company from the perspective of customer
profitability.
The Management & Control of
Quality (including Six-Sigma and
Lean)
Relationship between TQM & Financial Performance
A Strategic Model for Managing Quality
Lean Manufacturing
•
•
•
•
At the heart of lean manufacturing is the Toyota
Production System (TPS):
a long-term focus on relationships with suppliers and
coordination with these suppliers;
an emphasis on balanced, continuous flow
manufacturing with stable production levels;
continuous improvement in product design and
manufacturing processes with the objective of
eliminating waste ; and
flexible manufacturing systems in which different
vehicles are produced on the same assembly line and
employees are trained for a variety of tasks
Accounting for Lean
There are three reasons why the improvements in financial
results typically appear later than the operating improvements
from implementing lean.
• Customers will benefit from the improved manufacturing
flexibility by ordering in smaller, more diverse quantities.
• Improvements in productivity will create excess capacity; as
equipment and facilities are used more efficiently, some will
become idle.
• The decrease in inventory that results from lean means that,
using full cost accounting, the fixed costs incurred in prior periods
flow through the income statement when inventory is decreasing.
Accounting for Lean
Lean accounting uses value streams to measure the
financial benefits of a firm’s progress in implementing
lean manufacturing.
Each value stream is a group of related products or
services.
Accounting for value streams significantly reduces the
need for cost allocations (since the products are
aggregated into value streams) which can help the firm
to better understand the profitability of its process
improvements and product groups.
Lean Accounting – Value Streams
Rimmer Company
Value Stream Income Statement
Digital Cameras
Sales
Operating Costs
Materials
Labor
Equipment related costs
Occupancy costs
Total Operating Costs
Less Other Value Stream Costs
Manufacturing
Selling and Administration
$
$
25,200
168,000
92,400
11,200
585,000
$
$
-
120,000
10,000
130,000
240,000
10,000
158,200
(10,000)
$
148,200
Total
540,000
$
1,125,000
154,000
$
450,800
12,800
88,000
48,400
4,800
296,800
Value Stream Profit before inventory change
Less: Cost of decrease in inventory
Value Stream Profit
Video Cameras
$
250,000
380,000
136,000
(20,000)
294,200
(30,000)
116,000
$
Less Nontraceable Costs
Manufacturing
Selling and Administration
155,000
54,000
Total Nontraceable Fixed Costs
Operating Income
264,200
209,000
$
55,200
Operational and Managementlevel Performance Measurement
Performance Measurement
• Motivation and Evaluation
– Incentives: right decisions
• Align performance measurement with strategy
– Incentives: working hard
• Compensation and bonus plans
– Equity/fairness
• Controllability
• Cost allocations
• Operational-level and Management-level
Operational Performance Measurement
with a Flexible Budget
Schmidt Machinery Company
Analysis of Operations
For the period ended October 31, 20X6
2010
2010
Data Item for
Analysis
Units Sold
Sales
Variable Expenses
Contribution Margin
Fixed Expenses
Operating Income
Actual
Flexible
Budget
Variance
Flexible
Budget
780
0
$639,600
350,950
$288,650
$160,650
$128,000
$15,600
50
$15,650
$10,650
$5,000
F
F
F
U
F
Sales
Volume
(Activity)
Variance
Master
(Static)
Budget
780
220
U
1000
$624,000
351,000
$273,000
$150,000
$123,000
$176,000
99,000
$77,000
$0
$77,000
U
F
U
$800,000
450,000
$350,000
$150,000
$200,000
U
Management Performance Measurement
Cost Centers
• Engineered Cost (cost driver: volume based)
•Flexible Budget
• Discretionary Cost (cost driver?)
•Master Budget
• “Profit Center” – one step from outsourcing…
Management Performance Measurement
• Profit Centers:
• Variable costing income statements
• Issue of transfer pricing
• Role and importance of nonfinancial
performance indicators
• Investment Centers:
• ROI vs. RI vs. EVA®
•Measurement issues
• Issue of transfer pricing
• Role and importance of non-financial
performance indicators
Management –Level
Performance Measurement:
When to Use Profit or Cost Center
Customer
Plant
Warehouse
Using Software in the Strategic
Cost Management
Using Software in the
Strategic Cost Management
1. Excel:
Goal Seek
Solver
2. ABC:
OROS (SAS), SAP, …
Excel
3. Simulation:
Crystal Ball, @Risk, Excel(Formulas/Functions)
ABC Software: OROS Quick (from SAS)
• Comprehensive: resources through
objects
• Allow a couple of classes
• Short Tutorial, 13 pages, couple of
hours
• Blue Ridge Manufacturing Case
Introduction to Management Accounting
 Strategic Positioning
 Ethics
Implementing
Strategy
Product
Costing
Cost Behavior
(Planning and
Operational
Control)
 The Value
Chain
 Volume
Based
(Job
Costing)
 Cost Estimation
 The
Balanced
Scorecard
 Management
Control
 CVP Analysis
 Master Budget
 Activity based
Costing
 Decision
Making
 Flexible Budgets
Product Life
Cycle
 Target
Costing
 Life
Cycle
Costing
Cost Accounting
 Strategic Positioning
 Ethics
Implementing
Strategy
 The Value
Chain
 The
Balanced
Scorecard
Product
Costing
Cost Behavior
(Planning and
Operational
Control)
 Job Costing
Product Life
Cycle
 Cost Estimation
 Target
Costing
 CVP Analysis
(ABC)
 Life Cycle
Costing
 ABC Costing
 Process Cost
 Joint Costs
 Standard
Costing
 Master Budget
(ABC)
 Decision
Making (ABC)
 Managing
Constraints
Advanced Management Accounting
 Strategic Positioning
 Ethics
Implementing
Strategy
Cost Behavior
(ABC-based)
 The Value Chain
 Cost Estimation
(Regression)
 The Balanced
Scorecard (BSC)
 Management Control (TP)
 Executive Compensation
 Business Valuation
Product Life
Cycle
 Target
Costing
 CVP Analysis
 Master Budget
 Decision
Making (LP)
 Life
Cycle
Costing
Comparison of JIT Approaches with Traditional
Manufacturing and Purchasing
JIT
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Pull-through system
Insignificant inventories
Small supplier base
Long-term supplier contracts
Cellular structure
Multiskilled labor
Decentralized services
High employee involvement
Facilitating management style
Total quality control
Buyers’ market
Value-chain focus
Traditional
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Push-through system
Significant inventories
Large supplier base
Short-term supplier contracts
Departmental structure
Specialized labor
Centralized services
Low employee involvement
Supervisory management style
Acceptable quality level
Sellers’ market
Value-added focus
AKUNTANSI
PERTANGGUNGJAWABAN
Learning Objectives
•
Define responsibility accounting and
describe the four types of
responsibility centers
Responsibility Accounting
•Responsibility accounting is a system that
measures the results of each responsibility center
and compares those results with some measure of
expected or budgeted outcome.
– There are four major types of responsibility centers:
Cost center
Revenue center
Profit center
Investment center
10-106
Responsibility Accounting
Cost
Center
Cost, profit,
and investment
centers are all
known as
responsibility
centers.
Profit
Center
Responsibility
Center
Investment
Center
10-107
Cost Center
A segment whose manager has control
over costs, but not over revenues or
investment funds.
10-108
Profit Center
A segment whose
manager has control
over both costs and
revenues,
but no control over
investment funds.
Revenues
Sales
Interest
Other
Costs
Mfg. costs
Commissions
Salaries
Other
10-109
Investment Center
Corporate Headquarters
A segment whose
manager has
control over costs,
revenues, and
investments in
operating assets.
10-110
Responsibility Centers
Investment
Centers
Operations
Vice President
Salty Snacks
Product Manger
Bottling Plant
Manager
Beverages
Product Manager
Warehouse
Manager
Superior Foods Corporation
Corporate Headquarters
President and CEO
Finance
Chief FInancial Officer
Legal
General Counsel
Personnel
Vice President
Confections
Product Manager
Distribution
Manager
Cost
Centers
Superior Foods Corporation provides an example of the various kinds of
responsibility centers that exist in an organization.
10-111
Responsibility Centers
Superior Foods Corporation
Corporate Headquarters
President and CEO
Operations
Vice President
Salty Snacks
Product Manger
Bottling Plant
Manager
Beverages
Product Manager
Warehouse
Manager
Finance
Chief FInancial Officer
Legal
General Counsel
Personnel
Vice President
Confections
Product Manager
Distribution
Manager
Profit
Centers
Superior Foods Corporation provides an example of the various kinds of
responsibility centers that exist in an organization.
10-112
Responsibility Centers
Superior Foods Corporation
Corporate Headquarters
President and CEO
Operations
Vice President
Salty Snacks
Product Manger
Bottling Plant
Manager
Beverages
Product Manager
Warehouse
Manager
Finance
Chief FInancial Officer
Legal
General Counsel
Personnel
Vice President
Confections
Product Manager
Distribution
Manager
Cost
Centers
Superior Foods Corporation provides an example of the various kinds of
responsibility centers that exist in an organization.
Management Hubs
Profit Centers.
Subunit that has responsibility for generating
revenue as well as for controlling costs.
Cost Centers.
Subunit that has responsibility for controlling
costs but does not sell product. i.e. service
departments.
Profit Center
Organize business into subunits, profit center
& cost centers.
Track variable costs to profit centers.
Control escalators
Allocate asset use to subunits.
Evaluate on contribution margin and amount
of capital invested.
Word List
 Cost Behavior
 Variable Costs.
Variable Costs per
unit are constant.
 Fixed Costs.
Fixed costs per unit
vary with production
level.
 Mixed Costs.
Semi-variable costs
change in total with
changes in
production level, but
not proportionately.
Terms to Recognize
 Cost volume profit analysis  Contribution Margin
Profit = Sales (S) –
Sales -- Variable Costs
Variable Costs (VC) –
Contribution Margin
Fixed Costs (FC)
Ratio
• (Sales – Variable
Costs)÷ Sales
Cost-Volume-Profit Diagnostics
Breakevent Point
Sales (in dollars) = Fixed Costs / Contribution
margin ratio
Sales (units) = Fixed Costs / Contribution
margin per unit
Cost or
Revenue
($)
Quantity Produced
Break-Even Diagram
Break Even Quantity
Break Even Quantity
Profit / Loss
Corridor
Variable
Costs
Cost or
Revenue
($)
Fixed Cost
Quantity Produced
Break-Even Diagram
Fixed Cost
Break Even Quantity
Increased Fixed Costs
Break Even Quantity
Break-Even Diagram
Profit / Loss
Corridor
Variable
Costs
Cost or
Revenue
($)
Fixed Cost
Quantity Produced
Vocabulary
Differential costs and
 Opportunity Costs.
revenue
The benefit given
The additional cost
up by selecting one
or revenue incurred
alternative over
when one alternative is
another. i.e. Interest
chosen over another.
on stored grain.
Sunk cost.
Costs that are
already incurred & not
reversible.
Responsibility Accounting Model
•The responsibility accounting model is defined
by four essential elements:
assigning responsibility
establishing performance measures or
benchmarks
evaluating performance
assigning rewards
Types of Responsibility Accounting
•Management accounting offers the following
three types of responsibility accounting systems.
Functional-based
Activity-based
Strategic-based
Functional-Based
Responsibility Accounting System
•A functional-based responsibility accounting
system assigns responsibility to organizational
units and expresses performance measures in
financial terms.
–It is the responsibility accounting system
that was developed when most firms were
operating in relatively stable
environments.
Elements of a Functional-Based Responsibility
Accounting System
Organizational
Unit
Individual
in Charge
Responsibility
is Defined
Operating
Efficiency
Financial
Outcomes
Unit
Budgets
Standard
Costing
Static
Standards
Performance Measures
are Established
Currently
Attainable
Standards
Elements of a Functional-Based Responsibility
Accounting System
Controllable
Costs
Financial
Efficiency
Performance
is Measured
Actual versus
Standard
Financial
Measures
Promotions
Bonuses
Individuals are Rewarded
Based on
Financial Performance
Profit
Sharing
Salary
Increases
Activity-Based
Responsibility Accounting System
•An activity-based responsibility accounting
system assigns responsibility to processes and
uses both financial and nonfinancial measures
of performance.
–It is the responsibility accounting system
developed for those firms operating in
continuous improvement environments.
Elements of an Activity-Based
Responsibility Accounting System
Process
Team
Responsibility
is Defined
Value
Chain
Financial
Optimal
Dynamic
Performance Measures
are Established
ProcessOriented
ValueAdded
Elements of an Activity-Based
Responsibility Accounting System
Quality
Improvement
Time
Reductions
Performance
is Measured
Cost
Reductions
Trend
Measures
Promotions
Bonuses
Individuals are Rewarded
Based on Multidimensional
Performance
Gainsharing
Salary
Increases
Strategic-Based
Responsibility Accounting System
•A strategic-based responsibility accounting system
(Balanced Scorecard) translates the mission and
strategy of an organization into operational
objectives and measures for four different
perspectives:
The financial perspective
The customer perspective
The process perspective
The infrastructure (learning and growth) perspective
Strategy
• Strategy specifies how an organization
matches its own capabilities with the
opportunities in the marketplace to
accomplish its objectives
• A thorough understanding of the industry is
critical to implementing a successful strategy
Elements of a Strategic-Based
Responsibility Accounting System
Customer
Financial
Responsibility
is Defined
Process
Communicate
Strategy
Alignment of
Objectives
Infrastructure
Performance Measures
are Established
Balanced
Measures
Link to
Strategy
Elements of a Strategic-Based
Responsibility Accounting System
Customer
Measures
Financial
Measures
Performance
is Measured
Process
Measures
Infrastructure
Measures
Promotions
Bonuses
Individuals are Rewarded
Based on Multidimensional
Performance
Gainsharing
Salary
Increases
DESENTRALISASI DAN
HARGA TRANSFER
Learning Objectives
Explain why firms choose to decentralize
Explain the role of transfer pricing in a
decentralized firm.
Discuss the methods of setting transfer prices.
Decentralization:
The Major Issues
The degree of decentralization
Performance measurement
Management compensation
The setting of transfer prices
Reasons for Decentralization
•There are many reasons to explain why firms
decide to decentralize, including:
– 1.
– 2.
– 3.
– 4.
– 5.
– 6.
– 7.
better access to local information
cognitive limitations
more timely response
focusing of central management
training and evaluation
motivation
enhanced competition
10-139
Decentralization in Organizations
Advantages of
Decentralization
Lower-level managers
gain experience in
decision-making.
Lower-level decisions
often based on
better information.
Top management
freed to concentrate
on strategy.
Decision-making
authority leads to
job satisfaction.
Lower level managers
can respond quickly to
customers.
10-140
Decentralization in Organizations
Lower-level managers
may make decisions
without seeing the
“big picture.”
Lower-level manager’s
objectives may not
be those of the
organization.
May be a lack of
coordination among
autonomous
managers.
Disadvantages of
Decentralization
May be difficult to
spread innovative ideas
in the organization.
10-141
Decentralization and Segment Reporting
An Individual Store
Quick Mart
A segment is any part or
activity of an organization
about which a manager
seeks cost, revenue, or
profit data.
A Sales Territory
A Service Center
10-142
Superior Foods: Segmented by
Geographic Regions
Superior Foods Corporation
$500,000,000
East
$75,000,000
Oregon
$45,000,000
West
$300,000,000
Washington
$50,000,000
Midwest
$55,000,000
California
$120,000,000
South
$70,000,000
Mountain States
$85,000,000
Superior Foods Corporation could segment its business
by geographic region.
10-143
Superior Foods: Segmented by
Customer Channel
Superior Foods Corporation
$500,000,000
Convenience Stores
$80,000,000
Supermarket Chain A
$85,000,000
Supermarket Chains
$280,000,000
Supermarket Chain B
$65,000,000
Wholesale Distributors
$100,000,000
Supermarket Chain C
$90,000,000
Drugstores
$40,000,000
Supermarket Chain D
$40,000,000
Superior Foods Corporation could segment its business by
customer channel.
10-144
Keys to Segmented Income
Statements
There are two keys to building segmented
income statements:
A contribution format should be used because it
separates fixed from variable costs and it enables
the calculation of a contribution margin.
Traceable fixed costs should be separated from
common fixed costs to enable the calculation of a
segment margin.
10-145
Identifying Traceable Fixed
Costs
Traceable costs arise because of the
existence of a particular segment and would
disappear over time if the segment itself
disappeared.
No computer
division means . . .
No computer
division manager.
10-146
Identifying Common Fixed
Costs
Common costs arise because of the overall
operation of the company and would not
disappear if any particular segment were
eliminated.
No computer
division but . . .
We still have a
CEO.
10-147
Traceable Costs Can Become
Common Costs
It is important to realize that the traceable fixed
costs of one segment may be a common fixed cost
of another segment.
For example, the landing fee paid
to land an airplane at an airport
is traceable to the particular
flight, but it is not traceable to
first-class, business-class, and
economy-class passengers.
10-148
Segment Margin
Segment Margin
The segment margin, which is computed by
subtracting the traceable fixed costs of a
segment from its contribution margin, is the
best gauge of the long-run profitability of a
segment.
Time
10-149
Traceable and Common Costs
Fixed
Costs
Traceable
Don’t allocate
common costs to
segments.
Common
10-150
Activity-Based Costing
Activity-based costing can help identify how costs shared by
more than one segment are traceable to individual
segments.
Assume that three products, 9-inch, 12-inch, and 18-inch pipe, share 10,000 square feet of
warehousing space, which is leased at a price of $4 per square foot.
If the 9-inch, 12-inch, and 18-inch pipes occupy 1,000, 4,000, and 5,000 square feet,
respectively, then ABC can be used to trace the warehousing costs to the three products as
shown.
Pipe Products
9-inch
12-inch
18-inch
Total
Warehouse sq. ft.
1,000
4,000
5,000
10,000
Lease price per sq. ft. $
4 $
4 $
4 $
4
Total lease cost
$
4,000 $
16,000 $
20,000 $
40,000
10-151
Levels of Segmented
Statements
Webber, Inc. has two divisions.
Webber, Inc.
Computer
Division
Television
Division
Let’s look more closely at the
Television Division’s income
statement.
10-152
Levels of Segmented
Statements
Our approach to segment reporting uses
the contribution format.
Income Statement
Contribution Margin Format
Television Division
Sales
$ 300,000
Variable COGS
120,000
Other variable costs
30,000
Total variable costs
150,000
Contribution margin
150,000
Traceable fixed costs
90,000
Segment margin
$ 60,000
Cost of goods
sold consists of
variable
manufacturing
costs.
Fixed and
variable costs
are listed in
separate
sections.
10-153
Levels of Segmented
Statements
Our approach to segment reporting uses the
contribution format.
Income Statement
Contribution Margin Format
Television Division
Sales
$ 300,000
Variable COGS
120,000
Other variable costs
30,000
Total variable costs
150,000
Contribution margin
150,000
Traceable fixed costs
90,000
Segment margin
$ 60,000
Contribution margin
is computed by taking
sales minus variable
costs.
Segment margin
is Television’s
contribution
to profits.
10-154
Levels of Segmented
Statements
Income Statement
Company
Television
Sales
$ 500,000
$ 300,000
Variable costs
230,000
150,000
CM
270,000
150,000
Traceable FC
170,000
90,000
Segment margin
100,000
$ 60,000
Common costs
Net operating
income
Computer
$ 200,000
80,000
120,000
80,000
$ 40,000
10-155
Levels of Segmented
Statements
Income Statement
Company
Television
Computer
Sales
$ 500,000
$ 300,000
$ 200,000
Variable costs
230,000
150,000
80,000
CM
270,000
150,000
120,000
Traceable FC
170,000
90,000
80,000
Segment margin
100,000
$ 60,000
$ 40,000
Common costs
25,000
Common costs should not be
Net operating
allocated to the divisions.
income
$ 75,000
These costs would remain
even if one of the divisions
were eliminated.
10-156
Traceable Costs Can Become
Common Costs
As previously mentioned, fixed costs that are
traceable to one segment can become
common if the company is divided into
smaller segments.
Let’s see how this works using the
Webber, Inc. example!
10-157
Traceable Costs Can Become
Common Costs
Webber’s Television Division
Television
Division
LCD
Plasma
Product
Lines
10-158
Traceable Costs Can Become
Common Costs
Income Statement
Television
Division
LCD
Sales
$ 200,000
Variable costs
95,000
CM
105,000
Traceable FC
45,000
Product line margin
$ 60,000
Common costs
Divisional margin
Plasma
$ 100,000
55,000
45,000
35,000
$ 10,000
We obtained the following information from
the LCD and Plasma segments.
10-159
Traceable Costs Can Become
Common Costs
Income Statement
Television
Division
LCD
Sales
$ 300,000
$ 200,000
Variable costs
150,000
95,000
CM
150,000
105,000
Traceable FC
80,000
45,000
Product line margin
70,000
$ 60,000
Common costs
10,000
Divisional margin
$ 60,000
Plasma
$ 100,000
55,000
45,000
35,000
$ 10,000
Fixed costs directly traced
to the Television Division
$80,000 + $10,000 = $90,000
10-160
External Reports
The Financial Accounting Standards Board now requires
that companies in the United States include segmented
financial data in their annual reports.
1.
Companies must report segmented
results to shareholders using the same
methods that are used for internal
segmented reports.
2.
Since the contribution approach to
segment reporting does not comply with
GAAP, it is likely that some managers
will choose to construct their segmented
financial statements using the
absorption approach to comply with
GAAP.
10-161
Omission of Costs
Costs assigned to a segment should include
all costs attributable to that segment from the
company’s entire value chain.
Business Functions
Making Up The
Value Chain
Product
Customer
R&D Design Manufacturing Marketing Distribution Service
10-162
Inappropriate Methods of Allocating
Costs Among Segments
Failure to trace
costs directly
Segment
1
Segment
2
Inappropriate
allocation base
Segment
3
Segment
4
10-163
Common Costs and Segments
Common costs should not be arbitrarily allocated to
segments based on the rationale that “someone has to
cover the common costs” for two reasons:
1. This practice may make a profitable business segment
appear to be unprofitable.
2. Allocating common fixed costs forces managers to be
held accountable for costs they cannot control.
Segment
1
Segment
2
Segment
3
Segment
4
10-164
Quick Check 
Income Statement
Sales
Variable costs
CM
Traceable FC
Segment margin
Common costs
Profit
Hoagland's
Lakeshore
$ 800,000
310,000
490,000
246,000
244,000
200,000
$ 44,000
Bar
$ 100,000
60,000
40,000
26,000
$ 14,000
Restaurant
$ 700,000
250,000
450,000
220,000
$ 230,000
Assume that Hoagland's Lakeshore prepared its
segmented income statement as shown.
10-165
Quick Check 
How much of the common fixed cost of
$200,000 can be avoided by eliminating the
bar?
a. None of it.
b. Some of it.
c. All of it.
10-166
Quick Check 
How much of the common fixed cost of
$200,000 can be avoided by eliminating the bar?
a. None of it.
b. Some of it.
c. All of it.
A common fixed cost cannot be
eliminated by dropping one of
the segments.
10-167
Quick Check 
Suppose square feet is used as the basis for
allocating the common fixed cost of $200,000.
How much would be allocated to the bar if the
bar occupies 1,000 square feet and the
restaurant 9,000 square feet?
a. $20,000
b. $30,000
c. $40,000
d. $50,000
10-168
Quick Check 
Suppose square feet is used as the basis for
allocating the common fixed cost of $200,000.
How much would be allocated to the bar if the
bar occupies 1,000 square feet and the
restaurant 9,000 square feet?
a. $20,000
The bar would be allocated
b. $30,000
1/ of the cost or $20,000.
10
c. $40,000
d. $50,000
10-169
Quick Check 
If Hoagland's allocates its common costs to
the bar and the restaurant, what would be
the reported profit of each segment?
10-170
Allocations of Common Costs
Income Statement
Sales
Variable costs
CM
Traceable FC
Segment margin
Common costs
Profit
Hoagland's
Lakeshore
$ 800,000
310,000
490,000
246,000
244,000
200,000
$ 44,000
Bar
$ 100,000
60,000
40,000
26,000
14,000
20,000
$
(6,000)
Restaurant
$ 700,000
250,000
450,000
220,000
230,000
180,000
$ 50,000
Hurray, now everything adds up!!!
10-171
Quick Check 
Should the bar be eliminated?
a. Yes
b. No
10-172
Quick Check 
Should the bar be eliminated?
a. Yes
The profit was $44,000 before eliminating
b. No
the bar. If we eliminate the bar, profit
drops to $30,000!
Income Statement
Sales
Variable costs
CM
Traceable FC
Segment margin
Common costs
Profit
Hoagland's
Lakeshore
$ 700,000
250,000
450,000
220,000
230,000
200,000
$ 30,000
Bar
Restaurant
$ 700,000
250,000
450,000
220,000
230,000
200,000
$ 30,000
Transfer Pricing
•The transferred good is
revenue to the selling
division and cost to the
buying division. This
value is called transfer
pricing.
Transfer Pricing: General Concerns
Some Major Issues
Impact on divisional performance measures
Impact on firm wide profits
Impact on divisional autonomy
Transfer Pricing Approaches
 Market price
 Negotiated transfer prices
 Cost-based transfer prices
 Full cost
 Full cost plus markup
 Variable cost plus fixed fee
A Transfer Pricing Problem
Assume the following data for Division A:
Capacity in units
Selling price to outside
Variable cost per unit
Fixed costs per unit (based on capacity)
50,000
$15
8
5
Division B would like to purchase units for Division
A. Division B is currently purchasing 5,000 units per
year from an outside source at a cost of $14.
A Transfer Problem Example
(continued)
1.
2.
3.
Assume division A has idle capacity in excess of 10,000 units:
Minimum transfer price
= Variable cost + Lost contribution margin
= $8 + $0
= $8
Assume division A is working at capacity:
Transfer Price
= Variable cost + Lost contribution margin
= $8 + $7
= $15 (market price)
Assume division A is working at capacity, but a negotiated $2 in variable costs
can be avoided on intercompany sales.
Transfer Price
= Variable cost + Lost contribution margin
= $6 + $7
= $13 (negotiated price)