NRE Amortisation

Cost Allocation

Suppliers calculate the added cost per unit by dividing the total design fee by the planned production quantity over the life of the project. If a project requires one hundred thousand dollars in development costs and the buyer expects to purchase fifty thousand units, the supplier adds two dollars to the price of each unit. This approach helps the buyer manage their development budget by shifting capital expenses to operational expenses.

Volume Threshold

Tracking the number of shipped units is necessary to determine when the added fee should be removed from the purchase price. Once the agreed quantity is reached, the supplier must reduce the unit price to the baseline manufacturing cost. If the project is cancelled before this point, the buyer must pay the remaining balance of the development fee.

Contract Boundary

Agreements must define the consequences if the production run does not reach the expected volumes. When sales are lower than projected, the supplier has the right to bill the buyer for the unrecovered portion of the engineering fees. Having a clear agreement on these limits prevents financial disputes if market demand changes.