Published by:
Harvard Business Publishing
Length: 7 pages
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Abstract
Bellcore''s four service centers were charging unrealistically high prices internally. The transfer pricing system was at fault. Its four service centers were people intensive, and overhead costs were allocated on the basis of total head count. Rental rates were a companywide average and did not distinguish open space from labs or computer rooms, which are more expensive to maintain. By making some simple adjustments, Bellcore made the system more accurate, allocating overhead according to the proportion of technical and administrative professionals in a department and rental rates according to the kind of building space.
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Abstract
Bellcore''s four service centers were charging unrealistically high prices internally. The transfer pricing system was at fault. Its four service centers were people intensive, and overhead costs were allocated on the basis of total head count. Rental rates were a companywide average and did not distinguish open space from labs or computer rooms, which are more expensive to maintain. By making some simple adjustments, Bellcore made the system more accurate, allocating overhead according to the proportion of technical and administrative professionals in a department and rental rates according to the kind of building space.