About Multi-Site Transfer Order Costing

Transfer of material is supported through the use of transfer orders. Transfers can be made between warehouses within a site, between sites in the same financial entity, or between sites in different entities.

Transfer order header and line items are used to capture the information to drive the movement and costing of material. Once materials are transferred, transfer orders will create the necessary supporting accounting and material transactions.

Overview

Transfer order costing will function in one of two ways depending on the setting of the Posting Method parameter, on the Inter-Site Parameters form. The available Posting Method choices are:

  • Intra-Entity: Transfers occur at cost.
  • Inter-Entity: Transfers occur with revenue, with the From Site making a profit.

Transfer order processing first checks this Posting Method parameter to determine which types of financial entries to create. The actual scope of transactions created will also be affected by business processes at each site (for example, item cost at each site or pricing decisions).

Caution: 
No validation is provided to ensure that the system's financial environment does in fact exist as defined by this parameter. You are responsible for creating a financial environment that identifies how individual sites report financial results. The intent of the Posting Method parameter is to guide Transfer Order functionality in creating financial transactions that support a type of financial environment.

Costing and the Free On Board (FOB) Site

The designation of the Free On Board (FOB) point controls much of the supporting costing functionality. In the Transfer Order system, you can identify the FOB point as either the Ship Site or the Receive Site. You must specify the FOB point for all intercompany movements.

If the FOB point is the Ship Site, transfer of ownership takes place at the time of shipment. Material moves from a location in the Ship Site to a transit location in the Receive Site, and financial ownership changes from the Ship Site to the Receive Site. At receipt time, transactions are created to move the material from the transit location to a standard location at the Receive Site.

If the FOB point is the Receive Site, transfer of ownership takes place at the time of material receipt. Material moves from a location in the Ship Site to a transit location in the Ship Site. At receipt time, transactions are created to move the material from the transit location at the Ship Site to a standard location at the Receive Site. Financial ownership changes at receipt time.

When a site transfers inventory to another site, inventory cost at the shipping site is relieved against the five cost categories (Material, Labor, Fixed Overhead, Variable Overhead, and Outside Services).

When a site sells inventory to a site in another entity of the company, the Inter-Entity cost of goods sold at the shipping entity is debited against the five cost categories, and inventory is relieved against all five categories.

When a site receives inventory transferred from another site, inventory is received into stock as if it were a purchased item. If the receiving site has employed standard cost, the transferred item comes into inventory using the five cost elements (Material, Labor, Fixed Overhead, Variable Overhead, or Outside Services). If the receiving site uses any other cost type, the cost comes in as Material Only.

Supported Financial Transactions

Multi-site transfer order costing supports the following inter-site financial transactions:

  • Inter-Entity:
    • Inter-Entity Accounts Receivable: Equal to item price times the item quantity being transferred. Inter-entity accounts receivable is used for all Inter-Entity transfers, and only for Inter-Entity transfers, and is created only on the From Site.
    • Inter-Entity Sales: Equal to the cost of goods being transferred. Inter-Entity Sales is used for all Inter-Entity transfers, and only for Inter-Entity transfers, and is created only on the From Site.
    • Inter-Entity Cost Of Sales: Equal to the cost of goods being transferred. Inter-Entity Cost of Sales is used for all Inter-Entity transfers, and only for Inter-Entity transfers, and is created only on the From Site.
    • Inter-Entity Profit: Inter-Entity Profit is used for Inter-Entity transfers where the item price <> the item cost of the item being transferred. This is used only for Inter-Entity transfers, and is created only on the From Site.
    • Inventory; Split-WIP: Equal to the cost of the item, depending on the cost method used. Inventory, Split-WIP is used for all transfers and on both the From and To Sites.
    • Inter-Entity Cost: Used where the item price <> the item cost of the item being transferred. This is used only for Inter-Entity transfers, and is used only on the To Site. The Inter-Entity Cost on the To Site must equal the Inter-Entity Profit on the From Site.
    • Inter-Entity Accounts Payable: Equal to the item price times the item-quantity being transferred. Inter-Entity Accounts Payable is used for all Inter-Entity transfers, and only for Inter-Entity transfers. This is used only on the To Site, and the Inter-Entity Accounts Payable amount must be equal to the Inter-Entity Accounts Receivable amount on the From Site.
    • Inter-Entity Valuation Variance: Inter-Entity Valuation Variance is used to capture cost differences between sites in different entities. Inter-Entity Valuation Variance is used only on the To Site.
    Note:  For Inter-Entity transfers, regardless of the cost method being used on the To Site, if the To Site cost is not equal to the From Site cost, then the difference is charged to inter-entity valuation variance.
  • Inventory Adjustment:
    • Inventory Adjustment: Used when the To Site cost method is Specific Costing and the From Site item cost is not equal to the To Site item cost. This can be used for any transfer, and is used only on the To Site. Revaluation takes place, with the amount going to Inventory Adjustment.
    • The Inventory Adjustment account may be used for rounding differences for the ship transaction in an Intra-Entity Clear Ship journal transaction. The amount of the Clearing transaction in the ship site may not match the Clearing transaction in the receiving site if you are using WIP amounts in the shipping site and Material amounts in the receiving site. In this scenario, the Inventory Adjustment account is used to keep the clearing transactions the same in each site.
  • Intra-Entity:
    • Intra-Entity Clearing: Equal to the item-cost of material being transferred. This is similar in concept to the Cost Of Sales account used between Entities. Intra-Entity Clearing can be used for any Intra-Entity transfers, and only for Intra-Entity transfers. It is used on both the From Site and the To Site.

Transfer Markups

The system supports two types of transfer markups:

  • Profit Markup: A site within an entity sells product to another site in a different entity at a profit. Profit is defined as any amount added by the selling entity in excess of the cost amount of the inventory shipped. This markup must be eliminated during financial consolidation. From a company-wide standpoint, entities cannot make profits by selling to each other. From Site profit must equal the To Site cost. (A markup may be established by filling in the Price Code on the Inter-Site Parameters form. This uses standard pricing logic.)
  • Cost Markup: One entity or site transfers or sells a product to another entity or site and landed costs are incurred as a result of moving inventory. The seller does not increase costs to cover these expenses. It is the responsibility of the receiving entity to correctly include these costs in inventory. The Landed Cost functionality is used to include costs in the buying site's inventory. These costs are true costs to the receiving site, and should not be eliminated during financial consolidation.

Transfer Orders/Multi-Site Quantity Move and Costing

The method used to move inventory determines whether inventory moves through In-transit accounts or directly to the buyer's inventory accounts.

If you use the Multi-Site Quantity Move form, this method does not use the To and From Intransit Accounts of journal entries. However, if you use transfer orders, these can cause intransit entries to occur. The act of shipping and receiving inventory moves inventory into and out of Intransit accounts.

Examples

Following are specific examples of the multi-site transfer order costing methods in the system.

Note: The transfer process does not create journal entries if amounts or accounts are equal. Also, if items use standard cost on the receiving side, amounts are retained in separate cost buckets, as shown in most of the following examples. If items use actual cost, then all costs would be rolled into the material cost bucket.

Site to Site, Same Cost

Entity to Entity, Same Cost

Site to Site, Different Cost

Entity to Entity, Different Cost

Entity to Entity, Price Greater Than Cost

Site to Site, Same Cost, FOB Equals To Site

Entity to Entity, Same Cost, FOB Equals To Site

Site to Site, Different Cost, FOB Equals To Site

Entity to Entity, Different Cost, FOB Equals To Site

Entity to Entity, Price Greater Than Cost, FOB Equals To Site

Site A Actual Cost to Site B Standard Cost, Freight, Cost Markup

Site A Standard Cost to Site B Standard Cost, Freight, Cost Markup

Site A Standard Cost to Site B Actual Cost, Freight, Cost Markup

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

Entity 2 Site C to Entity 1 Site A, Profit and Freight Cost Markup

Entity 1 Site A to Entity 3 Site D, Profit and Freight Cost Markup, Different Currency

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