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Thursday, October 14, 2010

Meaning Of Inter-Process Profit And Its Objectives

What Is Inter-Process Profit ?

The profit associated with the transfer of goods from one process to another process is called inter-process profit. Normally, finished goods are transferred to the immediate next process at the cost of production basis. In some process industries, finished goods are transfer to the immediate next process by including a nominal amount of profit. The profit so incorporated is called inter-process profit. The price fixed by adding the nominal amount of profit for the transfer of finished goods to the next process is known as transfer price. Adding profit on the goods transferred is termed as mark-up price.

Transfer Price = Cost of output+ Profit

Objectives Of Inter-Process Profit

The output of a particular process is transfer to the next process by adding a nominal amount of profit for the following objectives:

* To assess the performance of the process operation.

* To examine whether the output can compete with the market or not.

* To decide whether the output should be sold without further processing or putting for further processing