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

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  • Rainer Lueg

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.

Suggested Citation

  • Rainer Lueg, 2020. "Activity-Based Costing as a Basis for Transfer Prices and Target Setting," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 489-499.
    • Handle: RePEc:ers:ijebaa:v:viii:y:2020:i:3:p:489-499
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    References listed on IDEAS

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    1. Janni Grouleff Nielsen & Rainer Lueg & Dennis van Liempd, 2019. "Managing Multiple Logics: The Role of Performance Measurement Systems in Social Enterprises," Sustainability, MDPI, vol. 11(8), pages 1-23, April.
    2. Lueg, Rainer & Radlach, Ronny, 2016. "Managing sustainable development with management control systems: A literature review," European Management Journal, Elsevier, vol. 34(2), pages 158-171.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Product profitability; Activity-based costing; transfer prices; target setting; incentives; restructuring; shareholder value; customer satisfaction.;
    All these keywords.

    JEL classification:

    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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