There are two types of inventory transfers. First there is Interplant Transfers which occurs when a corporation owns more than one company and one company within the corporation ships inventory to another company within the corporation. The second type of inventory transfer is Intracompany Transfers. This type of transfer is from one plant to another plant with the same company.
We will be using intracompany for our project. There are different values used to transfer inventory. We can bill the receiving plant. However, this would result in recording sales and cost of sales twice, once when we invoice the receiving plant and secondly the receiving plant invoices the final customer. If we use this method we will have to eliminate the intracompany sales. This process is complicated and is covered in advanced accounting courses. We will not use this method. Instead, we will transfer inventory at cost utilizing intraplant accounts.
For out exercisa we will make intracompany transfers with Corporation Z. Corporation Z has three plants. Dayton-Plant 1, Cleveland-Plant 2 and Canada-Plant 3. Normally we would consider currency exchange rate differences between the United State and Canada. For simplicity, we will assume there are no exchange rate differences