Page 205 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting Sukhpreet Kaur, Lovely Professional University

Notes Unit 10: Responsibility Accounting and Transfer Pricing

CONTENTS

Objectives
Introduction
10.1 Responsibility Centers
10.1.1 Cost Center
10.1.2 Revenue Center
10.1.3 Profit Center

10.1.4 Investment Center
10.2 Controllability Concept
10.3 Accounting Concepts
10.4 Advantages and Disadvantages of Responsibility Accounting

10.5 Transfer Pricing
10.5.1 Objectives of Transfer Pricing
10.5.2 Transfer Pricing Methods
10.6 Summary
10.7 Keywords

10.8 Review Questions
10.9 Further Readings

Objectives

After studying this unit, you will be able to:

z z Define responsibility centres
z z Describe controllability and accounting concept
z z Discuss the advantages and disadvantages of responsibility accounting
z z Explain transfer pricing

Introduction

Responsibility accounting is an underlying concept of accounting performance measurement
systems. The basic idea is that large diversified organizations are difficult, if not impossible to
manage as a single segment, thus they must be decentralized or separated into manageable parts.
These parts, or segments are referred to as responsibility centers that include:
1. Revenue centers,
2. Cost centers,
3. Profit centers, and

4. Investment centers

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