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    Summary of 'Performance Measurement and Control Systems For Implementing Strategy'' (Robert Simons)

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    The document summarizes a chapter about linking performance to markets from the book "Performance Measurement and Control Systems for Implementing Strategy" by Robert Simons. It discusses transfer prices between business units using either market prices or internal cost data. It also outlines key measures for evaluating performance in customer, factor, and financial markets, including revenue, profit, return on investment, residual income, and Economic Value Added (EVA).

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    Summary of 'Performance Measurement and Control Systems For Implementing Strategy'' (Robert Simons)

    Uploaded by

    wakmen
    33 views2 pages
    The document summarizes a chapter about linking performance to markets from the book "Performance Measurement and Control Systems for Implementing Strategy" by Robert Simons. It discusses transfer prices between business units using either market prices or internal cost data. It also outlines key measures for evaluating performance in customer, factor, and financial markets, including revenue, profit, return on investment, residual income, and Economic Value Added (EVA).

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    ch 8

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    ch8

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    The document summarizes a chapter about linking performance to markets from the book "Performance Measurement and Control Systems for Implementing Strategy" by Robert Simons. It discusses transfer prices between business units using either market prices or internal cost data. It also outlines key measures for evaluating performance in customer, factor, and financial markets, including revenue, profit, return on investment, residual income, and Economic Value Added (EVA).

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    33 views2 pages

    Summary of 'Performance Measurement and Control Systems For Implementing Strategy'' (Robert Simons)

    Uploaded by

    wakmen
    The document summarizes a chapter about linking performance to markets from the book "Performance Measurement and Control Systems for Implementing Strategy" by Robert Simons. It discusses transfer prices between business units using either market prices or internal cost data. It also outlines key measures for evaluating performance in customer, factor, and financial markets, including revenue, profit, return on investment, residual income, and Economic Value Added (EVA).

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    Summary of ‘’Performance Measurement and Control Systems for Implementing

    Strategy’’
    (Robert Simons)

    Chapter 8: Linking Performance to Markets

    Markets

    1. Inside the firm -> transfer goods and services are transferred between different business
    units. To adjust profit plans appropriately, managers must develop a system of transfer
    prices.
    2. Outside the firm -> customer, financial and supplier markets

    Transfer price = an internally set transaction price to account for the transfer of goods or
    services between divisions of the same firm.

     Transfer prices using market prices


    Using external market prices eliminates the potential for distortion resulting from non-arm’s
    length transfers. Prices based on market data reflect the true opportunity cost and market value
    of the transfer.

    Problem: market prices are not available.

     Transfer prices using internal cost data


    a. Variable cost -> cost that can be traced directly to a product or service
    b. Full cost -> direct cost plus an allocation for the divisional overhead
    c. Full cost plus profit
    d. Negotiated prices -> usually based on standard direct cost plus some profit
    e. Activity-based -> different cost standards (unit based, batch-based, product-based,
    plant level)

    Linking profit performance to external markets

    Corporate performance refers to a firm’s level of achievement in creating value for market
    constituents.
    Key value measures

     Customer markets:
    a. Financial: revenue, gross profit margin, warranty expenses, product returns
    b. Nonfinancial: market share, customer satisfaction

     Factor markets:
    Promptness and reliability of payment for goods and services received

     Financial markets:
    o Profit -> residual amount that is retained by the business after subtracting all expenses
    from revenue.
    o Return on investment -> profit / investment in business.
    o Residual income -> how much profit remains for (1) investment in the business and (2)
    distribution to owners after normal returns on investment.
    o Market value -> the price at which shares in the company trade on the open market.

    Economic Value Added (EVA) (=residual income)

    The calculation by EVA is similar to residual income but is distinguished by:


    1. Adjustments to eliminate the distortions of accrual accounting:
     LIFO inventory
     Deferred tax expenses
     Amortization of goodwill
     Research and development expense
    2. Adjustments to calculate cost of capital

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