What basis do we use for purchasing, net CPP or gross CPP?

When determining the basis for purchasing, net CPP is used because it provides a more accurate representation of the actual cost incurred after accounting for any deductions or adjustments, such as discounts or allowances. Net CPP reflects the amount of money that the buyer ultimately pays per unit, which is critical for understanding the true cost of an investment in comparison to the market price.

Using net CPP allows for better management of budgets and pricing strategies, as it factors in the relevant costs that affect overall profitability. By focusing on net CPP, organizations can make more informed purchasing decisions that align with their financial goals and operational efficiency.

In contrast, gross CPP, which does not take such deductions into account, might give a misleading impression of the costs involved in purchasing. Therefore, relying on net CPP ensures that all relevant financial factors are considered in the decision-making process.