Finance Tools
Fixed-Price Contract Cost Shock Calculator
Estimate profit or loss for a fixed-price contract when unit costs increase, including break-even cost shock thresholds.
Estimate profit or loss for a fixed-price contract when unit costs increase. This is a quick way to see margin compression and break-even cost shock limits.
Revenue per unit is locked.
Total units you must deliver.
Your expected cost before the shock.
Example: 8 means +8%.
Calculated from the shock inputs.
Per-unit
Profit/unit before: $25.00
Profit/unit after: $17.40
Change: -$7.60
Total
Total profit before: $125,000
Total profit after: $87,000
Total change: -$38,000
Break-even shock limit
Max cost increase (per unit) to avoid losses:
$25.00 (26.32%)
If cost increases exceed this, profit per unit becomes negative under the fixed contract price.
Margin compresses. You are absorbing the full cost shock.
How it works
- New cost = baseline cost × (1 + % increase) or baseline cost + $ increase.
- Profit/unit = fixed price − unit cost.
- Total profit = profit/unit × contract quantity.
- Break-even cost shock limit occurs when profit/unit = 0.
FAQ
Is this the same as “cost overrun”?
It’s closely related. Overrun usually refers to actual costs exceeding plan; this tool models that effect under a fixed price.
What about change orders?
This assumes no renegotiation. If you can renegotiate scope or price, use pass-through and contract escalation tools too.
How to use this fixed-price contract cost shock calculator
- Enter the fixed contract price per unit and the contract quantity.
- Enter your baseline unit cost.
- Enter the expected cost increase (% or $ per unit).
- Review new profit per unit, total profit, and break-even cost shock limits.
Example
A contract pays $120/unit for 5,000 units. Baseline cost is $95/unit. Costs rise by 8%.
- New cost = 95 × 1.08 = 102.60
- Profit/unit before = 120 − 95 = 25.00
- Profit/unit after = 120 − 102.60 = 17.40
- Total profit change = (17.40 − 25.00) × 5,000
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