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Impact of a direct channel on the choice of absorption versus direct costing using cost-based transfer price

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  • Hamamura, Jumpei

Abstract

This study analytically investigates the choice of a cost accounting system based on the cost-based transfer price by a divisionalized firm that has a direct channel through electronic commerce (EC). The findings show that the optimal choice between direct and absorption costing affects the increase of overhead allocation for the retail division through the cost-based transfer price. While traditional strategic transfer pricing literature shows that absorption costing is optimal in specific economic environments, this study demonstrates that direct costing is also optimal in a specific economic environment by considering dual channel competition. This research thus contributes to the extant strategic transfer pricing literature, which considers the choice of a cost accounting system in management accounting.

Suggested Citation

  • Hamamura, Jumpei, 2018. "Impact of a direct channel on the choice of absorption versus direct costing using cost-based transfer price," MPRA Paper 90836, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:90836
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    References listed on IDEAS

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    1. Kyle Cattani & Wendell Gilland & Hans Sebastian Heese & Jayashankar Swaminathan, 2006. "Boiling Frogs: Pricing Strategies for a Manufacturer Adding a Direct Channel that Competes with the Traditional Channel," Production and Operations Management, Production and Operations Management Society, vol. 15(1), pages 40-56, March.
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    6. Jack Hirshleifer, 1956. "On the Economics of Transfer Pricing," The Journal of Business, University of Chicago Press, vol. 29, pages 172-172.
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    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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