Example of Overhead Absorption for Interorganization Transfer Receipt

This is an example of overhead absorption for the interorganization transfer receipt of a standard costed item.

Let's consider an interorganization transfer for a standard costed item. The transfer price at the source organization and the standard cost details at the destination organization are shown in this table.

Cost Element	Transfer Price	Standard Cost
Material	$100.00	$110.00
Freight Overhead	$20.00	$30.00

The accounting distributions for this interorganization transfer receipt with overhead absorption enabled are listed in this table.

Accounting Line Type	Cost Element	Debit	Credit
Inventory	Material	$110.00
Inventory	Overhead	$30.00
Transfer Price Variance	Material	$10.00
Trade In Transit Valuation	Material		$100.00
Trade In Transit Valuation	Overhead		$20.00
Overhead Absorption	Overhead		$30.00

However, if you've set the transaction type to not absorb the overhead, then the accounting distributions created are listed in this table.

Accounting Line Type	Cost Element	Debit	Credit
Inventory	Material	$110.00
Inventory	Overhead	$30.00
Trade In Transit Valuation	Material		$100.00
Trade In Transit Valuation	Overhead		$20.00
Transfer Price Variance	Material		$10.00
Transfer Price Variance	Overhead		$10.00

The accounting distributions will be same even in the case of return to the source organization.