Basic Accounting Knowledge: Internal Transfer Price

What is the price of internal transfer?

The internal transfer price is also known as the "transfer price". It refers to a kind of valuation standard required by the mutual settlement and mutual transfer caused by the mutual supply of products, semi-finished products or services. Transfer price is widely used in enterprise decision making, cost calculation, performance evaluation and so on. It is related to the company's business strategy and internal control and management system. Generally, it consists of purchase price, circulation cost and profit.

Its characteristics reflect only the economic links between the profit centers of an enterprise group or a company, and generally do not occur directly with consumers. contact ;

It does not serve as the basis and basis of calculation for all kinds of differences and prices. Internal transfer price is a form of "closed market price", while "closed market price" refers to the price formed by buyers and sellers under certain constraints.

The principle of internal transfer price

First, the formulation of the price of internal transfer should help to distinguish the achievements and shortcomings of each responsibility center.

Second, the formulation of internal transfer price should be fair and reasonable and avoid subjective arbitrariness.

Third the internal transfer price should be voluntarily accepted by both the supplier and the buyer.

The types of internal transfer price mainly include: real cost method, actual cost addition method, standard cost method, standard cost addition method, market price method, dual market price method, negotiated price method and so on.

The form of internal transfer price

At present, the method of formulating internal transfer price is based on different valuation basis. roughly It can be divided into three main categories:

Market based transfer pricing

In the condition of perfect competition, market price is generally adopted. The market price method can solve the problems among different departments. Probably In the conflict, the production department has the right to choose whether the product is transferred internally or sold to the external market, and the purchasing department has the right to decide independently.

If the price deviates from the market price, the profits of the whole company will be reduced. The market price is more objective, which can embody the basic requirements of responsibility accounting, but the market price is easy to fluctuate. In the present stage of our country, the information processing ability is low, the accuracy and reliability of the market price are affected, and even some products have no market price as a reference, and the market price as a price of internal transfer is very limited.

Cost based transfer pricing

It includes complete cost method, cost plus method, variable cost plus fixed cost and so on. The cost here is not to take the actual cost of the company but the standard cost, so as to avoid transferring the low efficiency and waste to the transferred department. This method is simple and based on ready-made data, but the formulation of standard cost will be biased. It can not promote the control of production cost and easily overlook the competitive supply and demand relationship.

Negotiated price

Another category is between market pricing and cost pricing, that is, negotiated price.

Negotiation price is based on the price of the external market, and refers to the price of similar transactions between independent enterprises or between the third independent enterprises and the unrelated parties. The price negotiated between two parties will be determined as an internal transfer price. Negotiated price is based on the price independently established by various department centers, giving full consideration to the overall interests of enterprises and the interests of both suppliers and buyers.

Proper application of this method will play a great role. But in practice, because of the difference in quality, quantity, trade mark, brand and even the market economic level, it is very difficult to directly compare with the market price.

At the same time, it has some shortcomings, mainly in three aspects:

First, because a department manager usually has many secret information, he may profit from other department managers.

Two, performance indicators may be distorted by negotiation skills of department managers.

Three, consultations will spend considerable time and resources.