In most international corporations intercompany transfer of products and services is a great pain. There is constant fight and gameplaying between sister companies during budget times about fixing the transfer prices. The following spreadsheet is an attempt at creating a "fair rule" to create InterCo transfer prices [37 KB]
. It is based on sharing the total throughput for finished goods between Producer and Seller on a 75/25 basis. For components sold to a sister company the model proposes a guaranteed throughput of 60% which translates into multiplying the material content of the component with a factor of 2.5. You may change these ratios to your own likings - they were just (realistic) assumptions to build the template.
Be warned about the following two issues :
- this TP rule will "artificially" boost the top line of the producer and degrade all ratios built on total sales (such as %GE, %OpInc, %NP etc). It will not affect consolitated results however.
- this TP rule will create some tax issues for the part of your product portfolio for which the StdMargin may become negative due to low material content and high internal hourly rates for manufacturing.