Quiz 13: Investment Centers and Transfer Pricing


Primary objective of managerial accountant: The managerial accountant's primary objective in designing a responsibility-accounting system is to provide these incentives to the organizations subunit managers. -The key factor in deciding how well the responsibility-accounting system works is the extent to which it directs manager's efforts toward organizational goals. -Thus the accounting measures used to evaluate investment-center manager should provide them with incentives to act in the interest of the overall organization.

Goal Congruence: When the managers of sub units throughout an organization strive to achieve the goals set by top management is called goal congruence. Importance of goal congruence: -It helps in success of the organization by adding their sights set on every goal of every unit and sub units. -Managers not only have their sights sets on these organizational goals, but also have been given positive incentives to achieve them.

Management by objectives (MBO): Managerial approach known as management by objectives or MBO can be described as follows; • Under the MBO philosophy, managers participate in setting goals that they then strive to achieve. • The goals usually are expressed in financial or other quantitative terms, and the responsibility accounting system is used to evaluate Performance in achieving them. • An emphasis on obtaining goal congruence is consistent with a broad managerial approach called management by objectives.