Page 323 - PM Integrated Workbook 2018-19

Chapter 12

Divisional performance measurement and

transfer pricing

Outcome

By the end of this session you should be able to:

 explain the meaning of, and calculate from supplied data, return on investment
(ROI) in the context of divisional performance appraisal

 explain the meaning of, and calculate from supplied data, residual income (RI)
in the context of divisional performance appraisal

 discuss the shortcomings and benefits of ROI/RI in divisional performance
appraisal

 compare divisional performance using supplied data and recognise the
problems that can arise from the comparison

 explain the basis for setting a transfer price using variable cost

 explain, using simple numerical examples, the basis for setting a transfer price
using full cost

 explain how transfer prices can distort the performance assessment of divisions
and decisions made, including dysfunctional decision making

 explain, using simple numerical examples, the principles behind allowing for
intermediate markets

and answer questions relating to these areas.

The underpinning detail for this Chapter in your Integrated Workbook can
be found in Chapter 12 of your Study Text

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