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Cost plus a fixed-fee (CPFF) contracts pay costs plus a pre-determined fee that was agreed upon at the time of contract formation. Cost-plus-incentive fee (CPIF) contracts have a larger fee awarded for contracts which meet or exceed certain performance goals, for example being on schedule and any cost savings. [1]
Therefore, cost-plus pricing can offer competitive stability, decreasing the risk of price competition (such as price wars), if all companies adopt cost-plus pricing. The strategy enables price changes to goods and services relative to increases or decreases in the product cost which are simple to communicate and justify to customers. [ 8 ]
The accounting for long term contracts using the percentage of completion method is an exception to the basic realization principle. This method is used wherein the revenues are determined based on the costs incurred so far. The percentage of completion method is used when: Collections are assured; The accounting system can: Estimate profitability
The project is then invoiced to the customer based on the actual costs incurred plus the agreed margin. It is essentially the same as what is known (especially in the U.S.) as a cost-plus contract. This contract form is popular to ensure that a competitive price is obtained, for instance in cases where tender competitions are impractical.
The Final Price of the contract is expressed as follows: Final Price = Actual Cost + Final Fee. Note that if Contractor Share = 1, the contract is a Fixed Price Contract; if Contractor Share = 0, the contract is a cost plus fixed fee (CPFF) contract. [4] For example, assume a CPIF with: Target Cost = 1,000; Target Fee = 100
Mother Nature threw Ravi Ahuja a curve ball for his first interview since taking the reins as president and CEO of Sony Pictures Entertainment (SPE), conducted at the Variety Summit at CES today ...
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Billionaire entrepreneur, co-host of ABC's Shark Tank, and Dallas Mavericks co-owner Mark Cuban's latest venture is the Mark Cuban Cost Plus Drug Company. It aims to tackle the high cost and lack ...