Allocating Costs For Goal Congruence Essay

902 words - 4 pages

Allocating Costs for Goal Congruence

Creative Consumer Consultants (CCC) is a corporate consulting firm with offices in New York, Chicago, Paris and Little Rock that currently assigns general costs to each office in a degree dependent on the office's contribution to net income. Managers are free to make decisions they believe to be in the best interests of the company and their specific office, and they receive bonuses based on (1) net income of the individual office and (2) sharing the profit of the company overall. The purpose here is to assess how changes in how offices are charged for general costs could positively affect goal congruence within CCC.
Moving in a ...view middle of the document...

As example, the Paris office has struggled in the past year but did show a profit. After applying non-traceable costs, the Paris office posted a loss of $1 million, which equated to one-third of the company's net profit for the year. If every employee in the Paris office was wholly dedicated to their jobs and their company beyond all other factors in their lives, they still would receive no recognition for making a valiant effort and laying the groundwork for future prosperity. Table 1 illustrates.
Table 1. Non-traceable Costs Assigned to Offices
($ thousands)

Total Billings (Revenue) New York Chicago Paris Little Rock
Billings (Revenue) 50,000 22,000 10,000 16,000 2,000
Traceable Consulting Costs 33,500 14,000 6,000 12,500 1,000
Non-Traceable Consulting Costs 10,000 4,400 2,000 3,200 400
Gross Profit on Sales 6,500 3,600 2,000 300 600
Traceable Other Costs 1,000 300 200 500 0
Non-Traceable Other Costs 2,500 1,100 500 800 100
Net Income 3,000 2,200 2,200 (1,000) 500
Percent of net income 73.3 73.3 -33.3 16.7

If, on the other hand, the home office (New York) deducted all non-traceable costs directly from overall gross profit, then every office – even tiny Little Rock – would share in the benefits of the current year's results of the company worldwide. Non-traceable items still must be paid, but the home office can do that from corporate totals and still base monetary rewards on the same total figure of $3 million. Table 2 illustrates the changes.

Table 1. Non-traceable...

Other Papers Like Allocating Costs for Goal Congruence

Automation Consulting Services Essay

2444 words - 10 pages receive bonuses reflective of their office-specific revenue growth. By utilizing revenue as the only form of measurement to evaluate a managing partner’s efforts, ACS is creating a lack of goal congruence within the company as individual office managing partners are given the incentive to increase revenues at all costs, which includes allowing expenses to run out of control. Thus, this has resulted in an increase in revenues for the individual

Cost Allocation Essay

1058 words - 5 pages Methods of Allocating Costs - Overview 1. Review the three Method of Allocating Costs. - Direct Method - Step Down Method - Reciprocal Method 2. Discuss the strengths and weaknesses of each method 3. Winery Problem – platform for discussing Joint Cost Allocations 4. Review remaining cost allocation problems. 5. Summarize and Review. State College Community Hospital State College Community Hospital has 2 Service Departments: 1. Maintenance

Case Study

811 words - 4 pages - the extent of the penalties of non-achievement (including opportunity cost) Analysis of fits to determine the causes of the problems - describe the nature of the components in the organisation - assess their congruence among components (draw on other models if needed) Generate and identify causes Identify action steps to overcome causes of the problems Organisations as Systems • Internal interdependence • Capacity for feedback • Equilibrium

Birch Paper Company

734 words - 3 pages Paper Company. The out of pocket costs are much lower for Birch when keeping the bid internal. When evaluating the out of pocket costs associated with the different bids, it’s clear Birch cuts costs drastically when accepting the Thompson bid. (3) Should the commercial vice-president intervene? If so, how? - Yes the vice-president should definitely intervene. The vice-president needs to implement new measures that encourage goal congruence

Transfer Price

850 words - 4 pages the group's profit. (iv) To maximise group profit, transfers should be made at marginal cost to ensure that C makes the correct decision for the group. This policy has a demotivating effect on the management of A, however, as fixed costs are not covered. (v) ACF group should consider introducing a wide range of performance measures and/or qualitative measures to ensure goal congruence and to guard against dysfunctional decision-making.

Mktg 3010 Final Exam Study Guide

666 words - 3 pages d. Threat 3. Major producers of breakfast cereal pay a “slotting allowance” to grocery chains for their cereal brands. The slotting allowance ensures that grocery stores place the brand in a premium shelf position (usually, eye level for adults) and devote more shelf space to the brand. For the cereal producers, allocating promotional dollars to slotting allowances is a form of __________ promotion. a. Odd-even b. Push c. Pull d. Interval

Accounting Quiz Week 7

944 words - 4 pages prices?  Ensuring both the buyer and seller have goal congruence with respect to the organization’s goals. 15. What is generally considered the best transfer pricing basis when there is a competitive market for the product and market prices are readily available?  Market price-based transfer pricing 16. Because tax rates are different in different countries, companies have incentives to set transfer prices that will  increase revenues

Google Inc

1172 words - 5 pages present value of the tax shield. Diff: 2 Terms: capital budgeting Objective: 5 AACSB: Reflective thinking Objective 21.6 1) A manager who uses discounted cash flow methods to make capital budgeting decisions does NOT face goal-congruence issues if the accrual accounting rate of return is used for performance evaluation. Answer: FALSE Explanation: The manager does face goal-congruence issues. Diff: 2 Terms: discounted cash flow (DCF

Maple Case

1276 words - 6 pages activity for Maple. • Should outsourcing be considered for assembling the smartphones? Is there a way to reduce assembling costs? • Is it relevant to consider B as a profit center and to assess its performance on profit? It could rather be considered as a cost center and be accountable for costs (rather than profit). This would then enable to discuss a transfer price based on standard variable cost instead (and allow goal congruence among the divisions). Business Performance Management – HEC 2014-15 16 e

Greeting Inc

839 words - 4 pages -framed prints and wood-framed prints with matting. The best option for Greetings Inc. was to simplify the categories resulting in reduced cost of the ABC system. Implications of Using Operating Capacity When allocating fixed overhead costs using operating capacity the data shows how much each product costs at capacity But when allocating fixed overhead costs using the expected unit sold, then overhead allocation will be biased. By


2478 words - 10 pages income is an accounting measure of income minus a dollar amount for required return on an accounting measure of investment.RI=income-(RRR*investment). Advantage of RI: Some companies favour RI because managers will concentrate on maximizing an absolute amount rather than a percentage, such as ROI; Goal congruence is more likely to be achieved by using RI rather than ROI. Disadvantage of RI: Cannot be used to assess relative performance of

Related Essays

Kranworth Chair Corporation Essay

2283 words - 10 pages clearer responsibility and associated accountability. This is one area that is causing KCC issues. Division of responsibilities and the associated accountability need to be revised for better goal congruence; this issues will be discussed in more detail later. Making managers more cost conscious while being responsive to customer needs and market developments. This could give KCC an advantage if the managers are capable of handling the new

Cost Based Transfer Pricing Essay

965 words - 4 pages difference at $400. Using market-based transfer prices generally leads to the most optimal pricing decision for a company. Under conditions of perfectly competitive markets — when there are homogeneous products where neither buyer nor seller can influence the pricing structure of the market — interdependence between subunits is minimal, and there are no additional costs or benefits of using market prices.The objectives of goal congruence

Aloha Products Inc Essay

2759 words - 12 pages integrate with one of their suppliers. The third and final alternative would be to keep the current structure of the organization while changing the three department’s accountability and key measures for performance. Status Quo: As mentioned earlier, the centralized purchasing department is a great strategy to employ when trying to achieve low costs. Allocating a purchasing department to each individual plant would require duplicate positions at

Incentives Channel Of Dis Essay

8849 words - 36 pages demonstrate that agents sometimes act as stewards for the exchange, in which case goal alignment and more readily shared information (Crawford and Sobel 1982) reduce agency costs for the principal and operating costs for the agent (Lee and O’Neill 2003). Accordingly, we theorize agent evaluation of the incentive portfolio involves two facets, an instrumental facet, grounded in agency theory, that reflects perceptions of the extent of monetary