Bài giảng ri roi f5 acca

Bài giảng ri roi f5 acca Bài giảng ri roi f5 acca Bài giảng ri roi f5 acca Bài giảng ri roi f5 acca Bài giảng ri roi f5 acca Bài giảng ri roi f5 acca

Divisional Performance & Transfer Pricing - ACCA F5

• Topic: Measuring divisional performance (ROI, RI) and

setting transfer prices

• Exam Relevance: Common topic with frequent errors in

ROI/RI and transfer pricing

• 2025 Update: Emphasis on sustainability, computer-based

exams, and OECD-aligned transfer pricing

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Divisional Structures

• Divisionalization: Organizing company into divisions (vs.

centralization)

• Types:

– Cost Centre: Incurs costs, no direct revenue (e.g.,

production departments)

– Profit Centre: Generates revenue, profit calculated

separately (e.g., retail sections)

– Investment Centre: Has revenue, costs, assets (e.g.,

subsidiaries)

Performance Metrics by Division Type

• Cost Centre: Variance analysis (budget vs actual).

• Profit Centre: Profit measurement.

• Investment Centre: ROI and RI.

• Note: ROI and RI evaluate investment centres, not the

entire company

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ROI: Definition and Formula

• Definition: Measures profit per dollar of capital invested.

• Formula:

ROI = Profit after Depreciation

Capital Employed

• Methods:

– Net Assets: ROI = Profit / (Gross Assets - Accumulated Depreciation)

– Gross Assets: ROI = Profit / Gross Assets

ROI: Example

• Data: Profit = $1,500; Gross Assets = $20,000;

Accumulated Depreciation = $15,000

• Method 1 (Net Assets):

– Net Assets = $20,000 - $15,000 = $5,000

– ROI = $1,500 / $5,000 = 30%

• Method 2 (Gross Assets):

– ROI = $1,500 / $20,000 = 7.5%

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ROI: Advantages and Issues

• Advantages (Gross Assets): Avoids artificial ROI increase

over time

• Issues:

– Net Assets: ROI rises as assets depreciate, encouraging

dysfunctional behaviors

– Gross Assets: Ignores asset age, technology, and inflation – Managers may manipulate asset base or reject beneficial investments

• Note: Only include controllable assets, revenues, and costs.

RI: Definition and Formula

• Definition: Profit after deducting imputed interest on

capital

• Formula:

RI = Profit− Imputed Interest

• Imputed Interest: Capital Employed Ư Cost of Capital.

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RI: Example

• Data: Capital = $100,000; ROI = 20%; Cost of Capital =

12%

• Before Investment:

– Profit = $20,000; Interest = $12,000; RI = $8,000

• After Investment ($10,000, $5,000 profit):

– Profit = $25,000; Interest = $13,200; RI = $11,800

RI: Advantages and Disadvantages

• Advantages:

– Increases when profit exceeds cost of capital

– Flexible for varying risk levels

• Disadvantages: Cannot compare divisions due to scale

differences

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Transfer Pricing: Definition

• Definition: Price for internal transactions between divisions.

• Goal: Balance divisional autonomy, corporate profit

maximization, and fair performance evaluation

• 2025 Note: Aligns with OECD guidelines for fair pricing.

Transfer Pricing: Key Issues

• Divisional Autonomy: Divisions prioritize own interests.

• Corporate Profit Maximization: Disputes over output

levels

• Divisional Performance: Prices affect behavior and

evaluation

• Ideal Price: Ensures fair profit, encourages transfers,

maximizes corporate profit

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Transfer Pricing: Principles

• Minimum Price: Marginal cost + opportunity cost (selling

division)

• Maximum Price: Lowest external market price - internal

savings (buying division)

• Example: Division A: Marginal cost = $100, contribution =

$20 Division B: External price = $160

– Minimum = $120; Maximum = $160

Optimal Transfer Pricing

• Guidelines:

– Perfect Market: Market price - savings

– No Market: Variable cost + opportunity cost

– Variable Costs/Prices: Negotiate and analyze

• Note: High prices cause sub-optimization (divisional vs.

corporate interests)

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Market-Based Transfer Pricing

• Applicability: Products with external market prices.

• Advantages:

– Optimizes corporate profit

– Allows divisional negotiation

– Avoids price disputes

• Disadvantages: Price volatility, discourages spare capacity

use, imperfect markets

Cost-Based Transfer Pricing

• Types: Full cost or variable cost.

• Full Cost: Includes fixed costs; add profit margin for

motivation

• Variable Cost: Covers only variable costs; selling division

may not cover fixed costs

• Note: Common when no external market exists.

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Case Study: PGC Company

• Scenario: Two divisions (B: Battery, A: Adaptor).

• Division B: Sells batteries + adaptors ($180/unit) Costs:

Adaptor ($13), materials ($45), labor ($35) Fixed costs:

$5,460,000 Sales: 150,000 units; Demand: 180,000 units

• Division A: Sells adaptors to B ($13), externally ($15) Costs:

Materials ($3), labor ($4), external sales ($1) Fixed costs:

$2,200,000 Capacity: 350,000 units; External demand: 200,000 units