Efficiency of Divisionalization and Departmentalization on Corporate Returns with Regards to Transfer Pricing

Abstract

The study was carried out to examine the effect of transfer pricing between divisions and departments on corporate returns. Data were gathered through questionnaire on the selected sample companies in Nigeria. The study found out that transferred prices relate to performance measurements in that they affect, and establish a ceiling on the amount of profit or markup that a division is able to generate on its products. It was equally established that divisionalisation encourages managers to be profit responsible. That is, it encourages responsibility for generation of revenues, cost control and  satisfactory returns on investment of capital in the operations of an organization. It was therefore recommended that high budgeted controllable profit target should be set if divisional mangers must make enough profit that will cover both their own operational cost and the corporate expenses. More so divisionalized companies should ensure that their divisional managers concentrate on increase of controllable profit thus focus on the revenues and costs under their control, and be less worried about costs they cannot control.

Keywords: Efficiency, Divisionalization, Departmentalization, Corporate returns, Transfer  pricing, Performance measurement.