Example: Entity 2 Site C to Entity 1 Site a, Profit and Freight Cost Markup
In this example, Site C in Entity 2 transfers product to Site A in Entity 1, 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 and Site A uses actual cost. The cost is $1.15, and this includes $0.05 for freight. The company has defined the buyer 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 by Site C, the following journal entries are made:
| 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 | |
| Inv Materials | $0.55 | |
| Inv Labor | $0.30 | |
| Inv Fixed Ovhd | $0.15 | |
| Variable Ovhd | $0.15 | |
| Outside Serv | $0.00 |
When inventory is received by Site A, the following journal entries are made:
| Site C Journal Entries | ||
|---|---|---|
| Credit | Debit | |
| InterEntityision A/R | $1.265 | |
| InterEntity C of S Matls | $0.55 | |
| InterEntity C of S Labor | $0.30 | |
| InterEntity C of S Fixed Ovhd | $0.15 | |
| InterEntity C of S Var Ovhd | $0.15 | |
| InterEntity C of S 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 | |
| InterEntity Sales | $1.15 | |
| InterEntity Profit | $0.115 (Cost + 10% - Cost) |
| Site A Journal Entries | ||
|---|---|---|
| Credit | Debit | |
| Inv Materials | $1.20 | |
| InterEntity Cost | $0.115 | |
| InterEntity Val. Var. | $0.00 | |
| InterEntity A/P | $1.265 (Transfer Price) | |
| Freight Expense | $0.05 | |
| Duty Expense | $0.00 | |
| Brokerage Expense | $0.00 |