Factors influencing the cost of an item...

Factors influencing the cost of an item The term ‘item’ here can be multi-component equipment, a unit consisting of several equipments, or a project. The term ‘cost’ here means the total amount which the purchaser spends for the procurement of the item. The cost includes the amount paid to the seller through the contract entered with him and the additional expenditure incurred by the purchaser outside the contract for the procurement of the item. The contractual price is the amount which the purchaser pays to the supplier for fulfilling his obligations under the contract. While entering into a contract between the purchaser and the seller, the purchaser wants to pay the minimum price to keep his cost under control while the seller wants a price which can give him a decent profit after taking care of all the expenditure which he has to incur for the production and selling of the item. Often it may appear that the purchaser is paying a higher/lower price to the seller when compared to the price paid by another purchaser for the same item. This type of comparison is not advisable though very frequently it is being done by the purchasers, auditors and many other peoples.  In two contacts of purchase/sale of the same base item, though the supply of the base equipment can remain the same in the two contracts still the terms and conditions of the contract can differ a lot between the two contracts to influence the contractual price. For understanding the reasons for the difference in the price paid by the two purchasers for the so called same base item, it is necessary to understand the factors which are influencing the cost. These factors are (i) base date of the contract, (ii) scope of...