Activity-Based Costing as a Basis for Transfer Prices and Target Setting

  • Lueg R
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Abstract

Purpose: The article deals with a division of a large electronics company. The disvison intends to improve its product profitability using Time-driven Activity-based Costing. It also aims at aligning the incentives of executives by setting feasible transfer prices and motivating targets. Design/Methodology/Approach: The article illustrates how variance analysis and Activity-based Costing help managers to understand the different profitability of products better. Findings: The case study can serve both as a discussion basis in class as well as an exam for students in management, operations, and accounting. Practical Implications: Students will need to reflect on how a mechanical application of incentive systems can lead to dysfunctional decisions that run counter to a company's business model. Originality/Value: The open questions at the end of the article serve the purpose of raising students' awareness of the limits of cash-based incentive systems.

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APA

Lueg, R. (2020). Activity-Based Costing as a Basis for Transfer Prices and Target Setting. International Journal of Economics and Business Administration, VIII(Issue 3), 489–499. https://doi.org/10.35808/ijeba/539

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