Transfer pricing

Transfer pricing has assumed lot of importance today is one of the important tools in the hands of Management for performance evaluation of a division or department. Transfer pricing has become necessary in highly decentralized companies where number of divisions or departments are created as a part and parcel of the decentralized organisation . In the modern days ,production is on the mass scale due to technological advancements and upgradation. Organisations grow in course of time and for such growing organisations, decentralization becomes absolutely necessary it becomes inevitable for such organisations to establish separate divisions and departments to ensure smooth working . However it is also necessary to  evaluate the performance of these departments / divisions .
Transfer pricing is one of the tools in the hands of Management for measuring the performance.

   A Transfer Price is the notional value at which goods and services are transferred between divisions in a decentralized organisation.

Responsibility Accounting

Responsibility accounting :-
Responsibility accounting is a system of dividing an organisation into similar units, each of which is to be assigned particular responsibilities .These units maybe in the form of divisions ,segments ,departments ,branches ,product lines and so on. Each department is comprised of individuals who ensure that the people in the department are doing well achieve the goal responsibility accounting refers to the various concepts and tools used by managerial Accountants to measure the performance of people and departments in order to ensure that the achievement of goals set by the top management.
Types of responsibility centre 
The basic idea of responsibility accounting is that large  diversified organisations are difficult,if not impossible ,to manage has a single segment .They must be separated into smaller divisions . The divisions or segments are referred to as responsibility centre.

 A responsibility centre is a division of the organisation for which manager is held responsibility . Responsibility centres are of four types--revenue centre, profit centre and investment centre ,cost centre .

Cost Centre is location person or item of equipment approve of this for which cost may be ascertained and you should for the purpose of control.

 profit centre is defined has an activity centre of a business organisation.chief of such a centre is fully responsibility for all costs. Revenue'sand profitability of it operation .The main objective of the centre is to maximize the centre profit.

Revenue centre:- revenue centre is strictly defined as an organisational unit for which manager is accountable only for the generation of revenues and has no control over setting selling prices or budgeting costs

Investment centre:-investment centre is an organisational unit in which the manager is responsibility for generating revenues and planning and controlling expenses .In addition, the centres the highest feasible rate of return on the capital employed.

Nature and scope of Cost Accounting

The scope of cost accounting is very wide.There are lots of techniques, tools ,procedures, processes,programs are used in cost accounting for calculating cost and its control. But basically we divide its scope within three major parts

1. Cost Ascertainment :- In this region of cost accounting cost accounting collects products material, labour and overhead cost and try to calculate total and per unit cost of a product.This total cost calculation will be based on historical or standard or estimated basis. After this cost accountant will use any method of Costing like specific order costing ,operation costing and direct costing technique .This techniques and methods may be used for calculating different nature products in same organisation
2. Cost records:- In this part of cost accounting ,cost accountant maintain cost books ,vouchers, ledgers reports and other cost related documents for future comparison and reference.It will also be under the scope of cost accounting
3. Cost control:-This is the end boundary of cost accounting scope. In this division, cost accountant used different techniques and methods for controlling the cost. Save 1 Rupee the cost of product means we have earned 1 Rupee in the production of goods. So, cost accountant uses  budgetory control,standard costing ,break even point analysis and many other techniques for controlling the cost.

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Cost Accounting and objectives of cost accounting

• Cost and management accounting is one of the branches of accounting,which is developed due to overcome the limitations of the financial Accounting.
• Financial Accounting is primarily concerned with keeping records,directed towards the preparation of Profit and Loss Account and Balance sheet.
• The information provided by preparation of P&L a/c, Balance sheet are not helpful to the management to control the major functions such as production, administration, finance and selling & distribution etc and
• Financial Accounting provides operating efficiency and financial position in general way but not functional wise.
• The development of in the field of Cost Accounting help the management in cost control and cost reduction and also made help to the management in making policies.

Definitions:-
Cost:- cost is an amount of forgone,in order to acquire a particular good or a service.
Costing:- The process or technique of ascertaining cost is called costing.
Cost Accounting:- Cost Accounting is the process of accounting for cost which begins with recording of income and expenditure or the basis on which they are calculated and ends with the preparation of periodical statements and statements and reports for cost ascertaining and controlling costs.
Cost Accountancy:- The application of costing and cost accounting principles methods and techniques to the science arts and practice of cost control and cost ascertainment of profitability it includes the presentation of information derived therefrom for managerial decision making.
Objectives of cost accounting
     The primary objective of study of cost is to contribute to profitability through cost reduction and cost control. Apart from this following are objectives of cost accounting.

1. Ascertainment of cost:- This involves collection of cost information by recording them under suitable heads of account and reporting search information on a periodical basis.
2. Determination of selling price :-selling price is influenced by a number of factors however selling price should not be less than cost price except in exceptional  situations hence cost accounting required for determination of proper selling price.
3. Cost control and cost reduction:- In the long run higher profits can be achieved only through cost control and cost reduction and thereby will get maximum profits for that purpose cost accounting provides Certain techniques.
4. Ascertaining the profit of each activity or product :-profit of each activity or department our product can be determined by comparing revenues with appropriate costs.such information provided by the cost accounting.
5. Assisting management in decision making :-Business decisions are taken after analysing cost and benefit of each option and the manager chooses the least cost option. Thus cost accounting and reporting system helps to the managers in their decision making process.