The components reports shows how MSPCFO separates product from labor on your FFA agreements.  We do not highlight the L&S agreements as these are all product, by definition. The L&S Agreements can be filtered into the report by clicking on the "Include L&S Agreements".  We look at every line item on the invoice to break it down into the product and labor components.

As the amounts can change month by month, we look at the items for each month individually. Calculations take into account rules for product and labor components by using thresholds set up in the Options Table.

There are three items MSPCFO calculates from the line items:

• Cost for your products
• Revenue from products sold
• Revenue from labor

The one item we do not want to see here is labor costs hard coded as a line item cost.  Labor costs are calculated based on actual monthly usage and are variable.

The report shows FFA agreements for :

1. A given client or all clients.
2. A specific month. In this report, only one month is filtered.

We determine how to allocate revenue between product and labor based on the unit price and unit cost.  The specific rules are based on:

3. Cutoff Price ($) -  The theory is if you are selling a unit of a large product, there should be some labor involved.  If the individual agreement addition unit price is in excess of this amount (default is 50,000), we use a predefined margin (see 6. below) to determine the product value of the line item. If the product value is less than the full revenue value, the rest is allocated to labor. This setting is used very infrequently.
4. Minimum COGS % - If the unit cost divided by the unit price is below the Min COGS %, we will use a predefined margin (see 6. below) to determine product value.The remainder of the revenue will go to labor. If the unit cost divided by the unit price is equal to or above the Min COGS %, MSPCFO assumes the addition line is all product.
5. Minimum Markup ($) - If a price is entered, a markup is not forced even if the cost is equal or below the Min. Cutoff Margin.
6.  Margin (%) -  If any of three criteria are met (Cutoff Price, Min COGS %, Zero Price Additions with a cost) we will force the product value of the addition to be the lesser of the margin applied to the unit cost Unit Cost / (1-Margin) = Product Value or the actual value.  
(Note: Zero Price Additions are also set in the Options table.This is done by clicking Agreement Additions/Zero Price Enabled If an addition line has a cost and no price, then the price is usually included in another addition line in the labor. The value of the product is calculated by taking a Margin on the cost and then subtracting the value from the labor).

The values for 3 - 6 are set in the Options table. To change these thresholds, change the setting in Lookup/Options  under Agreement Additions.

You can also choose to include agreement types that are not in the report by default:

7. L&S Agreements
8. BT Recurring Rollover agreements

You can download this report to a PDF file, to an Excel/CSV spreadsheet, or into a 'report basket' (+) to be downloaded at a future time.

To view the line items of an agreement, click on the '+' next to the agreement name. This will expand the agreement into all of the line items.

The first nine columns of the report are extracted from your PSA.

The remaining fields (starting with Product Unit Value) are calculated in MSPCFO.

Here are some of the ways agreements are invoiced:

1. An agreement can have an agreement value (no additional line items). This agreement would be pure labor. There is no product value.

2. A line item in an agreement has a unit cost.

    a. If the unit cost is greater than a percentage of the unit price  then this line item is product only.

    b. If the unit cost is less than a percentage of the unit price, MSPCFO considers this line item to be a blend of both product and labor. The product unit value is calculated using  a margin markup. The product cost is calculated as being x% margin above the unit cost.
Product Unit Value = Unit Cost / (1-Margin%)

3. If a line item in an agreement has no unit cost, the line item is all labor.

4. Product Unit Value Cap.  If the product unit price is greater than the Cutoff Price, then we see this line item as potentially being both product and labor.

In the examples below, we will look at line item calculations for Product Cost, Product Revenue, and Labor Revenue. The Filters are set to:

Cutoff Price = $500
Min COGS % = 25%
Margin = 30%

(1) Blend of Product and Labor
There are two units with a unit cost of $49 and a unit price of $299. This meets the filter setting of a Min COGS %being less than 25%.

25% of $299 = $74.75
$49  is less than  $74.75

Therefore this is a line with a product and labor mix. The line item revenue to be considered is $598. The product unit value is unit cost divided by (1-Margin %).

$49/70% = $70.

The Product Cost is Quantity times Unit Cost.

2 X $49 = $98

The Product Revenue is Quantity times Product Unit Value

2 X $70 = $140

The Labor Revenue is the remainder.

$598 - $140 = $458  

(2)  Labor Only
This line item is labor only. There is no Unit Cost. $99 is labor revenue.

(3) Product Only
The line item is product only. There is a Unit Cost but no Unit Price. 8 units X $4.19 = $34 of product cost with $0 of product revenue.
Note: See Lookup/Options under Agreement Additions/Zero Price Additions with Cost.