Transfer Pricing Using the Conditions Technique 

 

The term "transfer pricing" is used to describe the calculation of prices for internal exchanges of goods between profit centers. Conditions are the individual steps carried out during price calculation. When a goods movement takes place between two plants, the price can depend on a number of factors, such as the material involved, the sender plant, the profit center, the partner profit center, and so on. The information on these variable factors is stored as master data in the form of condition records. There the transfer price can be defined as a fixed price or a percentage increase or reduction.

This section describes the steps necessary to define transfer prices. You define these transfer prices in Customizing. There you will also find a detailed description of how to proceed.

  1. Define condition tables, which you use to store condition records for each condition type.

    2. Here you define the price dependencies for transfer prices. You can make the transfer price found dependent upon a combination of fields. For example, if you want your transfer prices to be defined for a combination of material and partner profit center, you need to define a condition table that contains these key fields. The condition records then contain the individual prices for each combination of material and profit center. You maintain the condition records when you define the individual condition types.

  2. Define access sequences that the system should use to search for valid condition records.

    3. An access sequence is a search strategy that the system uses to find valid data for certain condition tables. Each access sequence consists of one or more steps, which the system processes in the order specified. The order determines where the system should look first for a valid condition record. You can specify an access sequence for any condition type for which you create condition records.

  3. Define condition types for all the pricing elements (fixed amounts, markups and markdowns) that occur in your daily business operations.

    4. In Profit Center Accounting, a condition type represents a component of a transfer price. You can define condition types for every type of fixed price, markup or markdown that occurs in your internal goods movements. If you define a percentage markup or markdown as a condition type, you also need to define another condition type to serve as the basis for this percentage. This can be a price stored in the material ledger. The relationship between these two condition types is then defined in the pricing procedure.

    In some condition types you need to specify an access sequence. In this way you determine which fields the system should use to search for a valid condition record.

  4. Define condition records that determine the amount or percentage to be applied for each set of values in the condition table (such as "fixed price of USD 100.00 for material 01, profit center ABC, and plant 0001").

    5. You can maintain condition records directly from within the definition of the condition type. Or you can define them from the application menu by choosing Master data ® Transfer prices ® Conditions. It is also possible to copy existing condition records to create new ones. This is especially useful if you want to change the currency of the condition record. You can maintain condition records either in Customizing or in the application menu, under Master data ® Transfer prices.

  5. Define a pricing procedure to group together condition types and determine how they relate to one another.

    6. In addition to the selection and order of condition types, a pricing procedure determines

    – which subtotals should be calculated

    – what base value the system should use for calculating percentage markups or markdowns

    – what conditions must be met in order for a certain condition type to be calculated

    The base value for markups and markdowns can be either a fixed price or a value from the material ledger. Using a routine supplied in the standard R/3 System, you can have the system read the legal, group, or profit center price from the material ledger and calculate the markup or markdown on this basis.

  6. Define condition exclusions, which let you determine which condition type should be used in a given situation.

    7. In transfer pricing for goods movements, it often happens that a number of different condition records are valid. Using condition exclusions, you can compare conditions with one another and use, for example, the most favorable price for the partner profit center.

    For different condition exclusion methods are available:

    · The most favorable condition in an exclusion group

    · The most favorable condition record for a condition type

    · The most favorable condition among different exclusion groups

    · Exclusion of those conditions in an exclusion group when a condition type that belongs to another exclusion group appears

     

  7. Define transfer price variants, which let you specify which pricing procedures are relevant for actual data and which for plan data.

    8. To valuate different datasets, such as plan and actual data, using different conditions, you can define variants with an assignment to a specific pricing procedure. The system processes the specified procedures in order until it finds a valid transfer price.

    In transfer pricing for goods movements, only actual data is valuated (variant 000). However, you can also create additional variants if you want to calculate plan prices on the basis of pricing data.

  8. Define pricing reports, which determine the structure of lists of conditions.

A pricing report lets you analyze condition records according to certain criteria and define the structure of these lists. You can define pricing reports either in Customizing for Profit Center Accounting or in the application menu, under Master data ® Transfer prices ® Pricing reports.

You make out all the settings described here in Customizing for Profit Center Accounting, in the activities under the section 'Transfer Prices'. See the following:

Basic Settings for Pricing

Advanced Settings for Pricing