Profit Center Accounting - Track Internal Revenue and Costs Using Transfer Pricing
- by Darshan Shah, Platinum Solutions Consultant, itelligence Consulting
- November 15, 2003
Profit Center Accounting: Track internal revenue and costs using transfer pricing.
I’ve been hearing a lot about this question: “What are the possible ways to record the internal sales for an organization?”
Let’s say you are required to track the profitability of a certain product. However, the product is sold as a consumption material to outside customers as well as to other product lines within the organization. Sometimes you may be required to charge other divisions or related companies not just the cost, but also an extra amount to cover the overhead or to share profits.
I’m going to address this situation and show you how you can make an informed decision, using three examples drawn from my personal experience. My focus is on the use of the Profit Center Accounting module.
Case 1: Internal Sales Revenue Tracking
Situation: There are two products within an organization, Product A and Product B. Product A is a finished product while Product B is a semi-finished product. Both products are sold to the outside world. However, B is a sub-assembly in the bill of material of A. That means every time A is produced, B is consumed. Or the situation could be that there are two plants in a company, with one plant transferring materials to the other plant.
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