Full-cost transfer pricing and cost management

Jan Bouwens, H.B.A. Steens

Research output: Contribution to JournalArticleAcademicpeer-review


Full-cost transfer pricing has been criticized for providing production units with insufficient incentives to economize. Our empirical study based on data from a large producer of consumer goods shows that charging fullcost transfer prices to downstream sales units can send upstream production units into a death spiral. However, our results also suggest that production units reduce costs to prevent the death spiral. We observe that managers focus their cost-cutting efforts on unit variable costs and on products with the best sales prospects. These results also suggest that, when production units are at risk of falling into a death spiral, full-cost transfer pricing can serve as a credible commitment device to motivate managers to reduce costs.

Original languageEnglish
Pages (from-to)63-81
Number of pages19
JournalJournal of Management Accounting Research
Issue number3
Publication statusPublished - Sept 2016


  • Cost management
  • Cost stickiness
  • Death spiral
  • Full costing
  • Transfer pricing

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