Transferring prices’ function in growing business performance
13-14/2005 , p128..136
Author(s):
Florin SGÂRDEA
Keywords:
Internal assignment costs, management instrument, complete cost, marginal cost
Abstract:
Internal assignment costs have been used in the large private industrial companies, since the very beginning. Utilization of this management instrument assumes to make the market’s constrains known within the company. Selection of a method in order to establish the internal assignment costs is the result, in particular, of each company’s own strategy and structure. Persons in charge with responsibility centers shall enjoy certain freedom in making decisions concerning internal assignment costs. However, in practice, such freedom is mostly limited. General Directorate holds various alternatives for selection of I.A.C. (internal assignment costs), such as: guidance of responsibilities through a centralized policy in setting the internal assignment costs; imposing of assignment costs leading to conflicts which could compromise the results; providing freedom to the responsibility centers in negotiation of internal assignment costs. Establishment of internal assignment costs is based on costs of similar goods and services sold on market or on the complete or marginal cost of such products escalated by a profit rate. Optimization of company’s overall result shall be the scope able to determine a team spirit in choosing of decisive priorities. Choosing of internal assignment costs shall consider the following factors: nature of responsibility centers; supplying sources for the respective reference; strategy adopted within the company. Two models have been imposed in this respect: John Dearden`s Model and Robert Eccles` Model.
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