Agreeing on an Internal Transfer Price

Whether you are transferring revenue or overhead between companies, you must establish a transfer price. For revenue-producing projects, the transfer price determines how the profit is split between the companies. For overhead, the transfer price determines how the costs are split between the companies.

For transferring revenue, your transfer price might be:

• Break-even, which is labor plus overhead.

• The average revenue multiplier on all your contracts.

• An amount established between break-even and average revenue multiplier.

• An amount that equals your billing rates.

For transferring overhead, your transfer price might be:

• The firm-wide overhead rate.

• Each company’s established overhead rate.

• Direct personnel expenses only.