Intercompany transfer of products and services is a great pain in most (international) corporations. During budget times there is constant fight and gameplaying between sister companies about fixing the “correct” transfer prices. The following spreadsheet is an attempt at creating a "fair rule" to compute 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% to the producer 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 consolidated results however.
- this TP rule may create tax issues for the part of your product portfolio for which the Standard Margin may become negative (due to low material content and high internal hourly rates for manufacturing).