Sunday, 17 November 2019

Unit 10: Responsibility Accounting and Transfer Pricing

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 Unit 10: Responsibility Accounting and Transfer Pricing   




Responsibility accounting is a concept of accounting performance measurement systems.

zz The basic idea under responsibility accounting 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.

zz These parts or segments are referred to as responsibility centers that include: cost centers, profit centers and investment centers.

This approach allows responsibility to be assigned to the segment managers that have the greatest amount of influence over the key elements to be managed.

zz There are many advantages and disadvantages of responsibility accounting.

The benefits exceed the limitations, thus rendering responsibility accounting a big space to settle in.

zz Transfer prices are the amounts charged by one segment of an organization for a product or service that it supplies to another segment of the same organization.

Cost Center: A cost center is part of an organization that does not produce direct profit and adds to the cost of running a company.

Investment Center: A unit within an organisation whose manager not only has profit responsibility but also some influence on capital expenditures.

Profit Center: A segment of a business for which costs, revenues, and profits are separately calculated.

Revenue Center: Unit within an organization that is responsible for generating revenues.

Transfer Prices: Transfer prices are the amounts charged by one segment of an organization for a product or service that it supplies to another segment of the same organization.






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