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Chapter 9
Objectives of a transfer pricing
system
2.1 Goal congruence
Divisional managers will have responsibility for divisional performance. They will act
independently, autonomously and selfishly in the best interests of their own division.
The task of the transfer pricing policy in particular is to ensure that what is good for
an individual division is good for the company as a whole.
2.2 Performance measurement
The transfer pricing system should result in a report of divisional profits that is a
reasonable measure of the managerial performance.
2.3 Maintaining divisional autonomy
One of the purposes of decentralisation is to allow managers to exercise greater
autonomy. There is little point in granting additional autonomy and then imposing
transfer prices that will affect the profitability of the division.
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