22 May 2020
Many a times, it so happens that a manufacturer, consignor or a head office does not directly engage in selling its products. It instead sends or consigns the goods to a profit centre--a dedicated centre for selling its products. The profit centre in case of a consignor is a consignee and in the case of a head office, its branch or retail outlet. Now when the principal sends the goods to the profit centre, it issues/transfers the goods at a price which is higher than the cost of production of those goods. This price is generally called Invoice Price (I.P.) and this is the value at which the branch/consignor records the receipt of the same. When the branch sells these goods it sells at a price greater than the I.P. thus earning a profit which has two components-- The mark up on the cost of production (i.e., the difference between the I.P. and the cost of production), and The profit made by the branch/consignee (i.e., the difference between seeling price of the branch and I.P.)
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