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Essay / Research Paper Abstract
A 3 page paper discussing transfer pricing, segment margins and goal congruence in internal pricing. A common feature of decentralized organizations is the need to account for costs of internal segments doing business with each other or accounting for the portion of segment costs that can be considered to be organizational costs. All of these are common costs for the larger organization, costs that need to be accounted for so that their true and full effects are discernible. Bibliography lists 5 sources.
Page Count:
3 pages (~225 words per page)
File: CC6_KSacctIntPric.rtf
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Unformatted sample text from the term paper:
decentralized organizations is the need to account for costs of internal segments doing business with each other or accounting for the portion of segment costs that can be considered to
be organizational costs. All of these are common costs for the larger organization, costs that need to be accounted for so that their true and full effects are discernible.
Methods of Allocating Common Costs Segment Margins The segment margin is a "Profitability measure used to evaluate the financial performance of a business
segment (i.e., division, territory, product line)" (Segment Margin, n.d.), arising from segmental revenue less the operating expenses attributable to a specific segment of an organizations total business. Segment earnings
do not include common costs of the larger organization, but they are offset by the traceable fixed costs of the segment. By definition, a traceable fixed cost "that is
incurred because of the existence of a segment. If the segment had never existed, the fixed cost would have not been incurred; and if the segment were eliminated, the fixed
cost would disappear" (Traceable and Common Fixed Costs, n.d.). One example is the salary of a Frito product manager as a traceable fixed cost of the Fritos segment of
the business of PepsiCo (Traceable and Common Fixed Costs, n.d.). Transfer Pricing Transfer pricing is the "amount charged by one segment of an
organization for a product or service that it supplies to another segment of the same organization" (Horngren, Sundem and Stratton, 2002; p. 397). There are several possible alternatives to
transfer pricing, including negotiating a price; variable cost pricing; and "market price minus" (Horngren, Sundem and Stratton, 2002; p. 399), which is the market price minus amounts for the marketing
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