The internal settlement price is the pricing standard applied when various estimation fulfillment entities within a company supply products or services to each other and settle accounts or transfer funds. In practical operations, the internal settlement price is generally a dynamic process, but it can be static during certain periods.
### I. The Significance of Formulating Internal Settlement Prices
The significance of internal settlement prices lies in clarifying the economic responsibilities of each estimation fulfillment entity, objectively evaluating their work performance, accurately planning budgets, motivating these entities, and enhancing constraints. Within a company, internal settlement prices are often the most controversial. In general single-entity companies, if they operate under a business unit system or departmental system, it involves assessing departments or business units. If it’s a single legal entity like recruitment websites in Baotou, Inner Mongolia, it involves evaluating the company and analyzing investment returns. For funding units or public utilities such as water, electricity, and gas, formulating internal settlement prices involves reasonably assessing the operational management level of the accounting entity. I once worked for a group that specialized in chemicals, with around a hundred companies. All materials, gases, and steam were transported through closed pipelines from one enterprise to another. My product could be your raw material, and possibly your waste gas could be my raw material, forming a large chemical conglomerate where we were intertwined. However, the most contentious issue among all units was the internal settlement price.
### II. Principles for Formulating Internal Settlement Prices
The principles for formulating internal settlement prices emphasize reasonableness first, striving to reflect the actual consumption levels of products or services so that both parties in the transaction feel fair and equitable; secondly, consider goal consistency: reasonable internal settlement prices should ensure the maximization of overall budget goals, harmonizing overall benefits with departmental interests; thirdly, independence: appropriate decentralization and authorization can stimulate the enthusiasm and initiative of each estimation fulfillment entity, so it should be determined independently by the relevant parties as much as possible; finally, standing on the entire value chain foundation, as a group enterprise, fully consider the importance of the group enterprise's industrial chain and adjust accordingly.
### III. Selection of Internal Settlement Prices
Internal settlement prices can be formulated based on cost, market price, or negotiated balance, each having its own emphasis.
#### Cost-Based Internal Settlement Prices
This includes actual cost pricing, standard cost pricing, and cost-plus pricing. Actual cost pricing is based on the actual consumption of the supplier, which is simple and easy to implement. However, sequential pricing transfers all achievements or defects of the supplier to the recipient, which is not conducive to accountability and constraint effects, thus generally not recommended. Standard cost pricing is based on the standard consumption of the supplier (standard total cost or standard variable cost), combining management and accounting work to avoid unclear responsibilities. Cost-plus pricing adds a certain profit margin to the product cost as the pricing basis, allowing the supplier's benefits to be represented, providing an incentive effect.
#### Market Price-Based Internal Settlement Prices
This uses the product or service price in the open market as the internal price, suitable for higher-level estimation fulfillment entities capable of selling products externally and purchasing them from the market.
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