Responsibility Centres and Transfer Pricing
Cost, revenue, profit and investment centres; controllability; transfer-pricing methods and behaviour.
How to study CIMA Management Level
Secure E2, P2 and F2 knowledge before practising integrated medium-term judgement. These single-best-answer study questions do not reproduce or claim to simulate the pre-seen, unseen information, timed written sections, professional formats and human marking of the Management Case Study.
Core concepts
Concept 1
Match responsibility-centre measures to decision authority.
Exam cue: Ask which revenues, costs and assets the manager can influence.
Concept 2
Evaluate transfer prices for goal congruence, autonomy and performance measurement.
Exam cue: Check spare capacity and opportunity cost before setting an internal price.
Concept 3
Distinguish controllable performance from accountability for influence.
Exam cue: Evaluate group and divisional effects separately.
Risk pitfalls and guardrails
Holding a manager responsible for an uncontrollable central charge.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, timing, evidence provenance, stakeholders and whether the conclusion follows.
Using market price without considering unused capacity.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, timing, evidence provenance, stakeholders and whether the conclusion follows.
Maximising one division's reported profit at group expense.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, timing, evidence provenance, stakeholders and whether the conclusion follows.
Memory anchors
Responsibility centre
An organisational unit whose manager is accountable for defined financial or operational results.
Minimum transfer price
Incremental cost plus the opportunity cost of internal transfer.
Controllability
Performance evaluation should distinguish what a manager can control or significantly influence.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
A manager controls costs but not revenue or investment. What responsibility centre is this?
A division controls selling price, cost and product mix but not major assets. What is it?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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