| | Cost covering method - examples- Coverage Percentage
- Ceiling
- Ceiling on Coverage Percentage
- Exclusion
- Own Risk
Coverage Percentage Example Assume: - Calculated service
contract sales value: 10,000
- Calculated service
contract costs value: 8000
- Actual sales spent
on service order: 8000
- Actual costs spent
on service order: 6400
- Discount: 10%
This means: - Installment invoice
of 1000 (10,000 * 10%)
- Additional invoices
of 7200 (8000 -/- 10%)
- Profit of sales: 200
(1000 -/- 800)
- Profit of costs: 160
(800 -/-640)
- P/L account: 1800
(1000 + 7200 -/- 6400) profit
Ceiling Used if/for: - 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.
- In a high risk or
unpredictable environment.
- Customer cannot pay
the entire service contract, but this could change over time (season revenues).
As opposed to Coverage Percentage: - No shared risk.
- Risk of service
company is limited to ceiling.
Example 1 Assume: - Calculated service
contract sales value: 10,000
- Calculated service
contract costs value: 8000
- Actual sales spent on
service order: 8000
- Actual costs spent on
service order: 6400
- Ceiling: 5000
This means: - Installment invoice of
5000 (= ceiling)
- Additional invoices of
3000 (8000 -/- 5000)
- Profit of sales: 0
(ceiling is consumed by customer)
- Profit of costs: Costs
estimation should be related to sales, otherwise only assumptions can be made
- P/L account: 1600
(8000 -/- 6400) profit
Example 2 Assume: - Calculated service
contract sales value: 10,000
- Calculated service
contract costs value: 8000
- Actual sales spent on
service order: 2000
- Actual costs spent on
service order: 1600
- Ceiling: 5000
This means: - Installment invoice of
5000 (= ceiling)
- No additional
invoices, because ceiling is not reached
- Profit of Sales: 3000
(5000 - 2000)
- Profit of Costs: 2400
(4000 - 1600)
- P/L account: 3400
(5000 -/- 1600) profit
Ceiling on Coverage Percentage Used if/for: - 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.
- In a high risk or
unpredictable environment.
- Customer cannot pay
the entire service contract, but this could change over time (season revenues).
As opposed to Ceiling: - More risk for the
customer.
Example 1 Assume: - Calculated service
contract sales value: 10,000
- Calculated service
contract costs value: 8000
- Actual sales spent on
service order: 8000
- Actual costs spent on
service order: 6400
- Ceiling: 1000,
discount: 10%
This means: - Installment invoice of
1000 (= ceiling)
- Additional invoices of
7200 (8000 -/- 10%, discount < 1000)
- Profit of sales: 0
(ceiling is consumed by customer)
- Profit of costs: Costs
estimation should be related to sales, otherwise only assumptions can be made
- P/L account: 1800
(1000 + 7200 -/- 6400) profit
Example 2 Assume: - Calculated service
contract sales value: 10,000
- Calculated service
contract costs value: 8000
- Actual sales spent on
service order: 8000
- Actual costs spent on
service order: 6400
- Ceiling: 1000,
discount: 20%
This means: - Installment invoice of
1000 (= ceiling)
- Additional invoices of
7000 (8000 -/- 20%, discount > 1000 -> 600 added to be invoiced ->
(8000 -/- 20% + 600))
- Profit of Sales: 0
(ceiling is consumed)
- Profit of Costs: Hard
to define
- P/L account: 1600
(8000 -/- 6400) profit
Example 3 Assume: - Calculated service
contract sales value: 10,000
- Calculated service
contract costs value: 8000
- Actual sales spent on
service order: 800
- Actual costs spent on
service order: 640
- Ceiling: 1000,
discount: 20%
This means: - Installment invoice of
1000 (= Ceiling)
- No additional
invoices, because the ceiling is not reached
- Profit of sales: 200
(1000 -/- 800)
- Profit of costs: 160
(800 -/- 640)
- P/L account: 360 (1000
-/- 640) profit
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