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

Jumpei Hamamura

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Economics; Game theory; Cost-based transfer pricing; Cost accounting; Direct channel (search for similar items in EconPapers)
JEL-codes: D43 M41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-gth
Date: 2018-12-25, Revised 2019-03-10
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