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Cost estimation and behavious
Chapter 4 the procurement process exercise 04-02
Chapter 4 the procurement process exercise 04-02
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Introduction
As a project manager, one must understand the procurement concepts, regardless of whether you are a buyer or a seller. Needless to say, procurement management helps identify a suitable supplier or contractor to procure goods or services. In most cases, a procurement contract is created. A procurement contract is an agreement in which the buyer agrees to acquire goods or services from a seller in exchange for consideration. A contract is a legally binding agreement between two or more parties. Usually, one party is known as a buyer and the other as the seller. This binding agreement is the key to the buyer and seller relationship and this provides the framework for how they will transact with each other. These contracts are mostly
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Sometimes this fee will be paid if the seller meets or exceeds the selected project objectives; for example, completing the task before time. A cost reimbursable contract is used when there is uncertainty in the scope, or the risk is higher. With this type of contract the buyer pays for all the cost as he bears the risks. Cost reimbursable contracts can be further divided into four categories; cost plus fixed fee contract (CPFF), cost plus incentive fee contract (CPIF), Cost plus award fee (CPAF) and cost plus percentage of cost (CPPC), Cost …show more content…
The buyer will decide the amount of the award based on an assessment of the contractor’s performance. (Dacuan, 2010). With this type of contract, the seller is paid for all his legitimate costs plus some award fee. This award fee will be based on achieving satisfaction according to certain performance objectives described in the contract. The evaluation of performance is a subjective matter, and it cannot be appealed.
Cost Plus Percentage of Cost (CPPC)
Here the seller is paid for all costs incurred plus a percentage of these costs. This type of contract is not preferred by the buyer because the seller might artificially increase the cost to earn a higher profit.
Cost Sharing
A cost sharing contract is a cost-reimbursement contract in which the contractor receives no additional fee and is reimbursed only for an agreed upon portion of those expenses. With this type of contract an arrangement is made both the buyer and seller to share the cost of the project, using an agreed calculation. A contractor should only enter a cost-sharing contract if the work will benefit the company in other ways sufficient to offset the shared expenditures. (Dacuan,
Based on the textbook and my understanding, whenever there are negotiations between a procurer and a supplier regarding a competitive bidding, the first thing that might be favored is the scope of the project, meaning both will sit down and discuss the entire project prior the work begins. Meanwhile, during the negotiations, evaluation criteria should be clear, and stated and defined. As the evaluation is based on the criteria stated and the procurer can request or ask the supplier’s opinions on certain specifications and where things can be improved.
...-based, charge-based, and contractual payment systems. (p. 7). CRC Press. Retrieved from http://books.google.com/books?id=sCzhN9HruM0C&dq=fee schedule based payment&source=gbs_navlinks_s
There can be multiple performance obligations in one contract and both parties should be clear on all obligations. The third step is to determine the transaction price found in FASB ASC 606-10-32-2 through 32-27. The determined price should take into consideration the amount the entity expects to receive in return for the goods and services. Entities should consider multiple factors including variable consideration, constraining elements of variable consideration, the existence of a significant financing component, noncash considerations, and consideration payable to the customer. The fourth step is to allocate the transaction price to separate performance obligations found is FASB ASC 606-10-32-28 through 32-41. The revenue recognition standard requires entities to allocate transaction price to each performance obligation that also reflects the amount they expect to receive in return for the goods and services. The transaction price for separate performance transactions is allocated by first determining the stand alone price at inception of
The Real Cost: Contract is a commercial that was released October 31, 2014 across multi-wide media, TV, Radio, Print, and digital causes a bright side of controversy for teens who were expected to be in use of Tobacco. The commercial shows a list of scenes in an average teen life while also the slow effects of losing free time and your own time with the use of cigarettes. It’s not the typical anti-smoking commercial because instead of just saying don’t smoke its digs in the feel of teen emotion towards how they chose to live there life and what decisions that are willing to make. The commercial features a teenage girl narrating normal events in her lifestyle talking in a way she’s stepping up in her life to find herself when initially
A corrective helmet, my innovation for the appraisal and treatment of pediatric head trauma will be utilized on both inpatient and outpatient premise. According to a doled out textbook, Inpatient implies when a patient is expected for a hospital stay of 24 hours or an increasingly or an overnight remain. While outpatient implies regularly patients released around the same time of admission. Be that as it may, as of recent CMS has posted “two-midnight rule” i.e. patient ought to be dealt with as an outpatient until three calendar days of hospital stay. In this way, contingent upon the severity of head injury, the basis as either in/out-patient for utilization of my innovative
The case presented is that of Sam Stevens who resides in an apartment. He has been working on an alarm system that makes barking sounds to scare off intruders, and has made a verbal agreement with a chain store to ship them 1,000 units. He had verbally told his landlord, Quinn, about his new invention and Quinn wished him luck. However, he recently received an eviction notice for the violation of his lease due to the fact that his new invention was too loud and interrupting the covenant of quiet of enjoyment of the neighbors and for conducting business from his apartment unit.
Using marginal costing technique we get information about fixed costs, variable costs and contribution. Using
...nt costs are allocated using different factors. This is because to determine the magnitude and the scope of a certain cost, there must be some factors to be considered. Hence different categories of costs are treated differently and are allocated cost differently. Hence it is clear that cost allocation is a noble requirement for every project.
An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx, 2009). The key to cost allocation under ABC is to identify the activities that are performed to provide a particular service and then aggregate the costs of the activities (Gapenski, 2012). This is a marked departure from the practice of sharing overheads costs equally or overheads becoming part of the overall profit-loss estimate instead of component product pricing (Nayab, 2011).
Many companies, particularly those in the manufacturing industry mostly produce products following a forecasting on demand. Though from time to time it can make them on receiving orders from its clients. The items that are made and the work which is completed in accordance with the order of a customers is called job. Hence, the costing process intended to establish the cost of a job is extremely important. Job order costing therefore is the costing system which establishes the cost of the jobs obtained from a client (Walther, n.d.). In this way, job order costing approximations the costs of producing products in line with clients' instructions.
Time-phased project work is the basis for project cost control. Work package duration is used to develop the project network. Further, the time-phased budgets for work packages are timetabled to establish fiscal measures for each phase throughout the project. The time-phased budgets are to emulate the real cash needs of the budget, which will be used for project cost control. This information is useful to estimate cash outflows. The project manager's attention is on when the costs are to occur, when the budgeted cost is earned, and when the actual cost materializes. This information is made up to measure project schedule and cost variances (Gray & Larson, 2005). The following are typical types of costs found in a project:
On the other hand, from a seller’s perspective, cost is referring to the sum of money that is used in the production of goods and services. Sellers usually sell their products at a price which is higher than the production price to ensure that they are able to make profit through the sales. If they were to sell their products at the production price, then they will neither facing losses in their sales nor making profit from the sales. Basically, cost can be categorized under certain basis such as basis of variability, function, and time period, direct and indirect nature of cost. Therefore, this categorization is known as classification of cost. Cost classification in other words is the categorisation of costs based on their mutual characteristics. There are few purposes of cost classification in several factors, mainly production costs, cost
Furthermore, there is good price certainty at the award of the contract because of full set information. However, there are some disadvantages to the process. First, it is very consume time in the pre-contract process due to the strategy is sequential and construction cannot be started before the completion of design. Also, the contractor is not appointed at the design stage, so the contractor and supply chain have no input into the design or planning of the project. Moreover, there are divided responsibility of design and construction, so it is easy to cause disputes in the post-contract processes.
This paper examines the legal aspects of procurement management and specifically how procurement management can be used as an effective tool for the overall management of a project. This paper focuses on the basics of common contract laws, the basics of agency law, the Uniform Commercial Code (UCC), and some aspects of that pertain to the Federal Acquisition Regulations (FAR). A summation of the company’s position in relation to a given supplier (provided the company decides not to procure all of the material in a contract) will be examined along with how that position is strengthened by understanding the legal aspects of procurement management. Finally, the paper will analyze how the project manager is supported by the contracting management function.
Additionally, there are semi –variable (or mixed) costs. A “semi-variable cost” is a “cost that has both fixed and variable components. This cost is fixed for a set amount of produced products or sold services and becomes variable after this amount of production/sales is exceeded. If no production occurs, the fixed component still occurs”. (Definition http://www.investopedia.com/terms/s/semivariablecost.asp).