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Amortization

Hi Gurus,

Could some one tell me what is Amortization in simple language.And when Amortization document will be created.

Advance thanks.

I will allocate points .

Bye

Madhu

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  • Posted on Dec 03, 2007 at 10:13 AM

    Dear Madhusudhan

    Assume that you receive an order from your customer for certain items. While few of them are in your regular range and would be able to despatch as per the schedule, some items may not be in your range and you need to develop based on the customer requirement.

    Normally to develop a product, the customer has to provide either drawing or a sample based on which, you have to estimate the manufacturing cost and give quote to customer. While giving quote to customer, you have to add some cost towards tooling which should be seperately shown to customer for recovery. Let us assume this would be 5000 INR.

    Customer accepts your proposal and ask you to recover from his first order lot of 1000 nos. Assume your basic price would be 500 INR. Now as per customer request, you have to bill the 1000 nos @ 505 INR.

    Here the amortization cost would be 5 INR per piece.

    Hope this would clarify you and if so, dont forget to reward please.

    Thanks

    G. Lakshmipathi

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