Profit Percentage method

Select this method to calculate the COGS on the basis of recognized revenue and a profit percentage.

When to use this method?

This method is often used for projects that do not have hardware deliverables. Example: Engineering and development projects.

Calculation of COGS for profitable contracts:

COGS = Total Revenue Recognized till that date x (1- Profit Percentage)

You can manually enter the percentage or click Calculate to get the calculated value. LN calculates the percentage using the following formula:

Profit percentage = 100 x (1- Budget/Contract amount)

or

Profit percentage = 100 x {1- EAC(Estimate at Completion/Contract amount}

Calculation of COGS for loss-making contracts:

In case of loss-making contracts the following calculation is done, as expected loss must be recognized as it occurs:

COGS = Total Revenue Recognized till that date - (Contract Amount x Profit Percentage)

Note

When the COGS is determined at Project level, ERP allows you to select the base to calculate the Profit Percentage. You can either select Budget or select Estimate at Completion as the base to calculate the profit percentage. For extensions, EAC is not applicable. Hence, LN calculates the percentage using the following formula:

Profit percentage = 100 x (1- Budget/Contract amount)

For projects with Unit Rate invoicing method, the ceiling amount is considered as the contract amount.

Profit Percentage can be recognized at these levels:

  • Project
  • Extension
  • Element
  • Activity

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