Responsibility Accounting and Transfer Pricing

1021 Words Mar 17th, 2011 5 Pages
Managerial Accounting and Controls Reporting
Responsibility Accounting and Transfer Pricing in Decentralized Operations
1. When are decentralized operations appropriate?
2. How does responsibility accounting relate to decentralization?
3. What are the differences among the four types of responsibility centers?
4. What is suboptimization and what are its effects?
5. How and why are transfer prices for products used in organizations?
6. What are the differences among the various definitions of product cost?
7. How and why are transfer prices for services used in organizations?

Centralization

Decentralization

Authority in Organizational Structure

Factor Pure Centralization Pure Decentralization
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Examples are:
• Quality
• Customer service
• Efficiency
• Cost control
• Responsiveness to change

Suboptimization
Suboptimization exists when individual managers pursue goals and objectives that are in their own and/or their segments’ particular interests rather than in the company’s best interests.
• Top management must be aware that suboptimization can occur and develop ways to avoid it
• Primary way to limit suboptimization is by communicating corporate goals

Transfer Price
A transfer price is an internal charge established for the exchange of goods or services between organizational

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