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<ManualTopic ID="/baanerp/ts/onlinemanual/000099" xml:lang="en">
	<Header>
		<Title xmlns:ssa="http://www.ssaglobal.com" xmlns:HTML="http://www.w3.org/TR/REC-html40">Cost covering method - examples</Title>
		<Keyword><Level1>Contract management</Level1>
			<Level2>cost covering method examples</Level2>
		</Keyword>
		<Keyword><Level1>Cost covering method</Level1>
			<Level2>contract management examples</Level2>
		</Keyword>
	</Header>
	<GeneralSection><List><ListItem><GUIRef href="/baanerp/ts/domains/ctm.ccov#fixed" role="enum">Fixed Price</GUIRef>
			</ListItem>
			<ListItem><GUIRef href="/baanerp/ts/domains/ctm.ccov#disc" role="enum">Coverage Percentage</GUIRef>
			</ListItem>
			<ListItem><GUIRef href="/baanerp/ts/domains/ctm.ccov#ceilpric" role="enum">Ceiling</GUIRef>
			</ListItem>
			<ListItem><GUIRef href="/baanerp/ts/domains/ctm.ccov#ceildisc" role="enum">Ceiling on Coverage Percentage</GUIRef>
			</ListItem>
			<ListItem><GUIRef href="/baanerp/ts/domains/ctm.ccov#exclusion" role="enum">Exclusion</GUIRef>
			</ListItem>
			<ListItem><GUIRef href="/baanerp/ts/domains/ctm.ccov#own.risk" role="enum">Own Risk</GUIRef>
			</ListItem>
		</List>
		<GeneralSection ID="1"><SectionTitle><GUIRef href="/baanerp/ts/domains/ctm.ccov#fixed" role="Enum">Fixed Price</GUIRef></SectionTitle>
			<List><ListIntro>Used if:</ListIntro>
				<ListItem>Stable business.</ListItem>
				<ListItem>No high risks.</ListItem>
				<ListItem>Predictable risks.</ListItem>
			</List>
			<List><ListIntro>Less useful for:</ListIntro>
				<ListItem>Unpredictable service demand.</ListItem>
				<ListItem>No experience (knowledge, other country, equipment).</ListItem>
			</List>
			<ExampleSection><Paragraph>Example</Paragraph>
				<List><ListIntro>Assume:</ListIntro>
					<ListItem>Calculated service contract sales value: 10,000, advance payment</ListItem>
					<ListItem>Calculated service contract costs value: 8000</ListItem>
					<ListItem>Actual sales spent on service order: 12,000</ListItem>
					<ListItem>Actual costs spent on service order: 9600</ListItem>
				</List>
				<List><ListIntro>This means:</ListIntro>
					<ListItem>Installment invoice of 10,000 in advance</ListItem>
					<ListItem>No separate invoices will be sent</ListItem>
					<ListItem>Loss of sales: 2000 (10,000 -/- 12,000)</ListItem>
					<ListItem>Loss of costs: 1600 (9600 -/- 8000)</ListItem>
					<ListItem>P/L account: Sales - Costs: 400 (10,000 -/- 9600) profit</ListItem>
				</List>
			</ExampleSection>
		</GeneralSection>
		<GeneralSection ID="2"><SectionTitle><GUIRef href="/baanerp/ts/domains/ctm.ccov#disc" role="Enum">Coverage Percentage</GUIRef></SectionTitle>
			<ExampleSection><Paragraph>Example</Paragraph>
				<List><ListIntro>Assume:</ListIntro>
					<ListItem>Calculated service contract sales value: 10,000</ListItem>
					<ListItem>Calculated service contract costs value: 8000</ListItem>
					<ListItem>Actual sales spent on service order: 8000</ListItem>
					<ListItem>Actual costs spent on service order: 6400</ListItem>
					<ListItem>Discount: 10%</ListItem>
				</List>
				<List><ListIntro>This means:</ListIntro>
					<ListItem>Installment invoice of 1000 (10,000 * 10%)</ListItem>
					<ListItem>Additional invoices of 7200 (8000 -/- 10%)</ListItem>
					<ListItem>Profit of sales: 200 (1000 -/- 800)</ListItem>
					<ListItem>Profit of costs: 160 (800 -/-640)</ListItem>
					<ListItem>P/L account: 1800 (1000 + 7200 -/- 6400) profit</ListItem>
				</List>
			</ExampleSection>
		</GeneralSection>
		<GeneralSection ID="3"><SectionTitle><GUIRef href="/baanerp/ts/domains/ctm.ccov#ceilpric" role="Enum">Ceiling</GUIRef></SectionTitle>
			<List><ListIntro>Used if/for:</ListIntro>
				<ListItem>Defining the most basic amount to deliver service (keep resources available), which means the customer has to pay for each following service that will be delivered.</ListItem>
				<ListItem>In a high risk or unpredictable environment.</ListItem>
				<ListItem>Customer cannot pay the entire service contract, but this could change over time (season revenues).</ListItem>
			</List>
			<List><ListIntro>As opposed to <GUIRef href="/baanerp/ts/domains/ctm.ccov#disc" role="enum">Coverage Percentage</GUIRef>:</ListIntro>
				<ListItem>No shared risk.</ListItem>
				<ListItem>Risk of service company is limited to ceiling.</ListItem>
			</List>
			<Paragraph>Example 1</Paragraph>
			<List><ListIntro>Assume:</ListIntro>
				<ListItem>Calculated service contract sales value: 10,000</ListItem>
				<ListItem>Calculated service contract costs value: 8000</ListItem>
				<ListItem>Actual sales spent on service order: 8000</ListItem>
				<ListItem>Actual costs spent on service order: 6400</ListItem>
				<ListItem>Ceiling: 5000</ListItem>
			</List>
			<List><ListIntro>This means:</ListIntro>
				<ListItem>Installment invoice of 5000 (= ceiling)</ListItem>
				<ListItem>Additional invoices of 3000 (8000 -/- 5000)</ListItem>
				<ListItem>Profit of sales: 0 (ceiling is consumed by customer)</ListItem>
				<ListItem>Profit of costs: Costs estimation should be related to sales, otherwise only assumptions can be made</ListItem>
				<ListItem>P/L account: 1600 (8000 -/- 6400) profit</ListItem>
			</List>
			<Paragraph>Example 2</Paragraph>
			<List><ListIntro>Assume:</ListIntro>
				<ListItem>Calculated service contract sales value: 10,000</ListItem>
				<ListItem>Calculated service contract costs value: 8000</ListItem>
				<ListItem>Actual sales spent on service order: 2000</ListItem>
				<ListItem>Actual costs spent on service order: 1600</ListItem>
				<ListItem>Ceiling: 5000</ListItem>
			</List>
			<List><ListIntro>This means:</ListIntro>
				<ListItem>Installment invoice of 5000 (= ceiling)</ListItem>
				<ListItem>No additional invoices, because ceiling is not reached</ListItem>
				<ListItem>Profit of Sales: 3000 (5000 - 2000)</ListItem>
				<ListItem>Profit of Costs: 2400 (4000 - 1600)</ListItem>
				<ListItem>P/L account: 3400 (5000 -/- 1600) profit</ListItem>
			</List>
		</GeneralSection>
		<GeneralSection ID="4"><SectionTitle><GUIRef href="/baanerp/ts/domains/ctm.ccov#ceildisc" role="Enum">Ceiling on Coverage Percentage</GUIRef></SectionTitle>
			<List><ListIntro>Used if/for:</ListIntro>
				<ListItem>Defining the most basic amount to deliver service (keep resources available), which means that the customer must pay for each next service that will be delivered.</ListItem>
				<ListItem>In a high risk or unpredictable environment.</ListItem>
				<ListItem>Customer cannot pay the entire service contract, but this could change over time (season revenues).</ListItem>
			</List>
			<List><ListIntro>As opposed to <GUIRef href="/baanerp/ts/domains/ctm.ccov#ceilpric" role="enum">Ceiling</GUIRef>:</ListIntro>
				<ListItem>More risk for the customer.</ListItem>
			</List>
			<Paragraph>Example 1</Paragraph>
			<List><ListIntro>Assume:</ListIntro>
				<ListItem>Calculated service contract sales value: 10,000</ListItem>
				<ListItem>Calculated service contract costs value: 8000</ListItem>
				<ListItem>Actual sales spent on service order: 8000</ListItem>
				<ListItem>Actual costs spent on service order: 6400</ListItem>
				<ListItem>Ceiling: 1000, discount: 10%</ListItem>
			</List>
			<List><ListIntro>This means:</ListIntro>
				<ListItem>Installment invoice of 1000 (= ceiling)</ListItem>
				<ListItem>Additional invoices of 7200 (8000 -/- 10%, discount &lt; 1000)</ListItem>
				<ListItem>Profit of sales: 0 (ceiling is consumed by customer)</ListItem>
				<ListItem>Profit of costs: Costs estimation should be related to sales, otherwise only assumptions can be made</ListItem>
				<ListItem>P/L account: 1800 (1000 + 7200 -/- 6400) profit</ListItem>
			</List>
			<Paragraph>Example 2</Paragraph>
			<List><ListIntro>Assume:</ListIntro>
				<ListItem>Calculated service contract sales value: 10,000</ListItem>
				<ListItem>Calculated service contract costs value: 8000</ListItem>
				<ListItem>Actual sales spent on service order: 8000</ListItem>
				<ListItem>Actual costs spent on service order: 6400</ListItem>
				<ListItem>Ceiling: 1000, discount: 20%</ListItem>
			</List>
			<List><ListIntro>This means:</ListIntro>
				<ListItem>Installment invoice of 1000 (= ceiling)</ListItem>
				<ListItem>Additional invoices of 7000 (8000 -/- 20%, discount &gt; 1000 -&gt; 600 added to be invoiced -&gt; (8000 -/- 20% + 600))</ListItem>
				<ListItem>Profit of Sales: 0 (ceiling is consumed)</ListItem>
				<ListItem>Profit of Costs: Hard to define</ListItem>
				<ListItem>P/L account: 1600 (8000 -/- 6400) profit</ListItem>
			</List>
			<Paragraph>Example 3</Paragraph>
			<List><ListIntro>Assume:</ListIntro>
				<ListItem>Calculated service contract sales value: 10,000</ListItem>
				<ListItem>Calculated service contract costs value: 8000</ListItem>
				<ListItem>Actual sales spent on service order: 800</ListItem>
				<ListItem>Actual costs spent on service order: 640</ListItem>
				<ListItem>Ceiling: 1000, discount: 20%</ListItem>
			</List>
			<List><ListIntro>This means:</ListIntro>
				<ListItem>Installment invoice of 1000 (= Ceiling)</ListItem>
				<ListItem>No additional invoices, because the ceiling is not reached</ListItem>
				<ListItem>Profit of sales: 200 (1000 -/- 800)</ListItem>
				<ListItem>Profit of costs: 160 (800 -/- 640)</ListItem>
				<ListItem>P/L account: 360 (1000 -/- 640) profit</ListItem>
			</List>
		</GeneralSection>
	</GeneralSection>
</ManualTopic>
