What Is The Price Of Internal Pfer?

There are two purposes for setting up pfer prices: to prevent inter departmental responsibility pference caused by cost pfer, so that each profit center can conduct performance evaluation as a separate organizational unit; as a price guidance, the lower level departments make wise decisions, and the production department determines the quantity of products to be supplied accordingly, and the purchasing department determines the quantity of products required accordingly.

The pfer prices that can be considered include the following:

1. market prices

When there is a perfectly competitive market in the intermediate products, the market price minus the external sales cost is an ideal pfer price.

The best way to measure the intrinsic economic value of products is to put them into the market and judge the price of products recognized by society in the market competition.

In order to sell intermediate products, enterprises need to add all kinds of sales expenses, such as packaging, shipping, advertising, settlement and so on. Therefore, the market price minus some adjustment items is the price of intermediate products that are not currently sold.

From the point of view of opportunity cost, the export earnings of intermediate products used for internal purposes are the accruals used by the internal purchasing department.

The hypothesis of perfectly competitive market means that there is a fair market for intermediate products outside the enterprise. The production department is allowed to sell any quantity of products to the outside customers, and the purchasing department can also get any quantity of products from outside suppliers.

The pfer price based on market price is usually lower than the market price. This discount reflects the cost of sales related to export, as well as the cost of delivery, warranty and so on, so it can encourage the internal pfer of intermediate products.

Without considering other complicated factors, purchasing managers should choose products from inside rather than from outside.

If the production department can not make long-term profits under such pfer price, it is best for the enterprise to stop producing this product and to purchase it outside.

It is worth noting that an external supplier may first quote a lower price in order to do business.

2. market based consultative prices

If there is an imperfect competition in the intermediate market, the pfer price can be determined by negotiation. That is, the managers of the two departments negotiate and pfer the quantity, quality, time and price of the intermediate products, and try to reach agreement.

Successful negotiation pfer price depends on the following conditions: first, there is a certain form of external market, and two department managers can freely choose to accept or reject a price.

If it is impossible to obtain or sell intermediate products from outside, it will make one or both sides in a monopolistic state, so that the negotiation result is not negotiated price but monopoly price.

In the case of monopoly, the determination of the final price is influenced by the strength and skill of the negotiators.

Secondly, all the information resources are shared among negotiators.

This condition enables the negotiated price to approach the opportunity cost of a party, and if both sides are close to the opportunity cost, it is more desirable.

Finally, the necessary intervention of the top management.

Although it is possible for the two sides to solve most of their own problems as far as possible, so as to bring the advantages of decentralized management into full play, the top management must intervene in the non optimal decisions that may be caused by negotiations between the two sides, and it is necessary to mediate disputes between the two sides which can not resolve themselves.

Of course, such intervention must be limited and appropriate, so that the whole negotiation can not be turned into a superior leader to decide all the problems.

Negotiating prices often wastes time and energy, which may lead to contradictions among departments. The size of the Department's profitability is greatly related to the negotiation skills of negotiators, which is a defect of such pfer price.

Despite these shortcomings, the price of negotiated pfer is still widely adopted. Its advantages are flexibility, which can take care of both sides' interests and be recognized by both sides.

A small amount of outsourcing or takeaway is beneficial. It can ensure reasonable external price information and provide a reference standard for both parties.

3. variable cost plus fixed fee pfer price

This method requires the pfer of intermediate products to be priced by unit variable cost. At the same time, fixed charges should be charged to the purchasing department as a compensation for obtaining intermediate products at a low price for a long time.

In doing so, the production department has the opportunity to compensate fixed costs and obtain profits through fixed charges per period. When the purchase department pays a specific amount of fixed fee each time, it only needs to pay the variable cost for the purchased products, and the output level can be achieved through the principle of marginal cost equals marginal revenue, so that the profit can reach the optimal level.

According to this method, the total fixed fee charged by the supply department is the sum of the fixed cost budgets and the necessary remuneration during the period, and it is allocated to the purchasing department in proportion to the normal demand of each purchase department.

In addition, the variable cost of determining the standard for the unit product is calculated according to the actual purchase amount of the purchase department.

If the total demand exceeds the production capacity of the supply department, and the variable cost no longer represents the marginal cost that needs additional, then the pfer price will lose its positive role.

Conversely, if the market demand of the final product is very small, the intermediate products needed by the purchasing department will be very few, but it still needs to pay a fixed fee.

Under such circumstances, the market risk is entirely borne by the purchasing department, and the supply department can still maintain a certain level of profit, which is very unfair.

In fact, the supply and purchase departments are affected by the final product market and should share the market fluctuations caused by market changes.

4. full cost pfer price

Taking the full cost or full cost plus a certain profit as the internal pfer price may be the worst choice.

It is not a good yardstick of performance evaluation, nor can it lead managers to make informed decisions that are conducive to enterprises.

Its only advantage is simplicity.

First of all, it is based on the cost of various departments, plus a percentage of profits, which is theoretically not convincing.

On the basis of current cost, department managers will be encouraged to maintain a relatively high level of cost and earn more profits accordingly.

The more cost saving units are, the more likely they will be reduced in the next period and the profits will be reduced.

The determination of the percentage of the cost addition is also a difficult problem. It is hard to tell why he is 5%, 10%, or 20%.

Secondly, in continuous production enterprises, the cost will be continuously pferred with the products in the departments, and the cost will continue to accumulate. Using the same cost plus rate will make the profit of the post order department much larger than that of the foregoing department.

Therefore, only when the price of other forms can not be pferred, the full cost plus method should be considered to formulate the pfer price.