Entity 1 Site A to Entity 2 Site C:Cost and Profit Markup

In this example, Site A in Entity 1 transfers product to Site C in Entity 2, with both a cost markup and a profit markup.

Site A and Site C are in different states, and the products will be shipped by an external freight company. Site C has added freight costs to the product using Landed Cost functionality, and therefore there is a cost markup.

Site C uses standard cost. The cost is $1.15, and this includes $0.05 for freight. The company has defined the seller as the Free On Board (FOB) owner, and has established a profit markup of cost plus 10%. This is established in a global pricing table.

When inventory is shipped from Site A, the following journal entries are made:

Site A Journal Entries Credit Debit
InterEntity A/R   $1.10
InterEntity C of S Matls   $0.50
InterEntity C of S Labor   $0.15
InterEntity C of S Fixed Ovhd   $0.20
InterEntity C of S Var Ovhd   $0.15
InterEntity C of S Outside Serv   $0.00
InterEntity Sales $1.00 (cost of inv.)  
InterEntity Profit $1.10 (price - cost)  
Inv Materials $0.50  
Inv Labor $0.15  
Inv Fixed Ovhd $0.20  
Variable Ovhd $0.15  
Outside Serv $0.00  

This table shows the Site C entries:

Site C Journal Entries Credit Debit
InterEntity Intransit Matl   $0.55
InterEntity Intransit Labor   $0.30
InterEntity Intransit Fixed Ovhd   $0.15
InterEntity Intransit Variable Ovhd   $0.15
InterEntity Intransit Outside Serv   $0.00
InterEntity Cost   $0.10
  (Transfer Price - Site A cost)  
InterCompany Val. Var. $0.10  
  (Site A cost - Site C cost)  
InterEntity A/P $1.10 (Transfer Price)  
Freight Expense $0.05  
Duty Expense $0.00  
Brokerage Expense $0.00  

This table shows the Site C entries:

Site C Journal Entries Credit Debit
Inv Matls   $0.55
Inv Labor   $0.30
Inv Fixed Ovhd   $0.15
Inv Variable Ovhd   $0.15
Inv Outside Serv   $0.00
InterEntity Intransit Matl $0.55  
InterEntity Intransit Labor $0.30  
InterEntity Intransit Fixed Ovhd $0.15  
InterEntity Intransit Var. Ovhd $0.15  
InterEntity Intransit Outside Serv $0.00