Charging for Data Processing Services

Date of Submission


Document Type


Degree Name

Master of Science in Accounting




Robert McDonald


Cost accounting

Call No. at the Univ. of New Haven Library

AS 36 .N29 Acc. 1985 no.4


Management control has been defined as "the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization's goals."1 One aspect of the management control problem is assuring effective and efficient utilization of corporate services.

Service organizations can be classified as:

1. Those which offer services over which the user has no control.

2. Those that provide services that the user must accept, but for which the amount of the service is at least partially controllable by the user.

3. Those which the user has the discretion of using or not using.

Using departments ordinarily cannot control the services rendered by such staff offices as accounting, public relations, industrial relations, and legal. They must accept these services and have little, if anything, to say about the amount that is spent on them.

In some cases, user departments must accept a central service, but the amount of the service that it accepts may be controllable. Data processing and.research development are two examples.

There are some instances where management may decide that the use of a central service is optional to the user department thus allowing it to use an outside service, develop internal capability, or simply not use the service at all. Data processing and internal consulting groups lend themselves to this type of arrangement.

From the standpoint of responsibility accounting very little attention has been given to the control of these types of services. Typical cost accounting literature, policies and procedures center around such control techniques as standard costs, analysis of variances, statistical quality control, production control, and inventory control, most of which are not easy applications in a service environment.

One method of management control gaining more and more acceptance is charging internally for the use of data processing services. It is this method of control and the establishment of accounting methodology that I wish to explore in depth.

Like all management control mechanisms, a chargeback system must be tailored to the objectives it will serve and the environment in which it will operate. For this reason I will deal in general terms and attempt to develop a chargeback system that will be applicable in any type of organization.

1 R.N. Anthony, J. Dearden and R.I. Vancil, Management Control Systems, Revised Edition (Homewood, Illinois: Richard D. Irwin, Inc., 1972), p. 5.