Chapter 6 Transfer Pricing

Management Control Systems

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Unformatted text preview: Chapter 6 Transfer Pricing Summary: Delegating authority depends on the ability to delegate responsibility for profits. Profit responsibility cannot be safely delegated unless 2 conditions exist: 1. The delegatee has all the relevant info needed to make optimum profit decisions. 2. The delegatee’s performance is measured on how well he or she has made cost/revenue trade-offs. Where segments of a company share responsibility for product development, manufacturing and marketing, a transfer price system is required if these segments are to be delegated profit responsibility. This transfer price system must result in 2 conditions just described. In complex organizations, devising a transfer price system that ensures the necessary knowledge and motivation for optimum decision-making can be difficult. Two decisions are involved in designing a transfer price system. First is the sourcing decision: Should the company produce the product inside the company or purchase it from an outside vendor? Second is the company produce the product inside the company or purchase it from an outside vendor?...
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Chapter 6 Transfer Pricing - Chapter 6 Transfer Pricing...

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