Example: Site A Actual Cost to Site B Standard Cost, Freight, Cost Markup
In this example, Site A in Columbus transfers product to Site B in Columbus. Freight is involved, so Site B will have a Cost Markup. Assume that the standard cost at Site B is $1.05, and that the actual cost at Site A is $1.10.
Although both sites are in Columbus, the company has contracted with a freight company to move product. The company has established the cost markup amount(s) for freight and loaded them in the Item Costs form. Paperwork is not required.
At time of inventory transfer, assume a landed cost freight charge of $0.05. This is the amount set up for landed cost for the product.
| Site A Journal Entries | Credit | Debit |
|---|---|---|
| IntraDivision Clearing (Site A) | $1.10 | |
| Inv Materials | $0.50 | |
| Inv Labor | $0.25 | |
| Inv Fixed Ovhd | $0.20 | |
| Variable Ovhd | $0.15 | |
| Outside Serv | $0.00 |
| Site B Journal Entries | Credit | Debit |
|---|---|---|
| Inv Materials | $0.50 | |
| Inv Labor | $0.25 | |
| Inv Fixed Ovhd | $0.20 | |
| Variable Ovhd | $0.10 | |
| Outside Serv | $0.00 | |
| InterDivision Val. Var. | $0.10 | |
| IntraDivision Clearing | $1.10 | |
| Freight Expense | $0.05 | |
| Duty Expense | $0.00 | |
| Brokerage Expense | $0.00 |
In this scenario, a purchase order will probably be created for the freight company. When the freight bill is vouchered, the following journal entries would occur at Site B:
In the following example, the invoice comes in at $0.05, matching the purchase order amount.
| Credit | Debit | |
|---|---|---|
| Freight Expense | $0.05 | |
| Accounts Payable | $0.05 |
In the following example, the invoice comes in at $0.06, different from the purchase order amount.
| Credit | Debit | |
|---|---|---|
| Freight Expense | $0.05 | |
| Freight Variance | $0.01 | |
| Accounts Payable | $0.06 |