The company I work for has many different business units and each one has a finance manager

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The company I work for has many different business units and each one has a finance manager that looks over the financials every week. We have a stand up meeting each week that share where are accounts receivables are for the month, what is still outstanding and if any of those have gone past the term agreement. The manager will see the trends on how the flow is matching up to the forecast that was outlined by the budget and we have a mid year re plan to identify any major changes that are to what we call the budgetary control tower. All of these tools identify, month over month, the health of business from a financial perspective. The only customer the business unit has is with the US Military. The financial manager reviews on a monthly basis both the sales and chargeable hours each month. Per the contracts, the business unit is able to collect against he programs the work completed each month which is called revenue recognition.

The purpose for this is due to that the product sold can take upwards of 18 months to complete. The financial manager will calculate the billable hours against the business unit's charge rate to generate the revenue earned within the month. Using these methods and tools show the performance of the company to see how well the team is performing against the forecast. One area that is strongly focused on for the financial manager is the balance between fix firm pricing and cost plus work. Fix firm pricing is the set price for a given contract that is negotiated for a term of quantity for a given period of time and the price does not change (Hack & Soroudi, 2017). Cost plus pricing is also a contract but this resides in a new build technology associated with research and development work that has a period of performance but caped by a funding limit.

This gives the team boundaries to maximize effort and associate the right cost and margins for follow on work if the new technology is adapted for the customer (Guo, 2021). Between these two types of revenue streams, the fix firm pricing has the margins built in and are easy to predict the financial outcomes. The cost plus is much harder to predict and once the period of performance is complete, there is no guarantee of follow on work.

An example that would put the company in jeopardy is if a program of firm fix pricing halted production for a long period of time to sole work on cost plus work could lead to financial blow considering the forecast was targeting a firm fix build rate to support the financial requirements for a given period. This is where the mix and balance of the work is crucial to understand from a financial perspective and shows whether the company is successful or in distress.

Do you agree or disagree. please explain.