Sample Critical Thinking On Cost And Price Analysis
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In cost accounting, Cost classification is important to managers because it assists them to make decisions that keep their departments on budget and maximize forthcoming profits. Vectorcal being alone company in the drone navigation system has to provide competitive advantage to the business hence has to value cost classification (Murphy, 2009). The value of cost classification in the production of the navigation system is that they provide managers with a close and clear look at the fixed and indirect costs of providing services or manufacturing products (Campanella, 1999). However, cost classification helps management to set up cost control programs so as to keep expenses at a low and stay under budget by evidently showing which expenses are inflexible and in what areas savings are probable. The value for this classification of the manufacturing costs and manufacturing overhead is mostly to enable the company in decision-making. Every decision made involves choosing among the two alternatives. Relevant in making the selections are the costs and benefits that differ between the alternatives (Campanella, 1999). The value for the manufacturing cost classification is to enable the company, vectorcal, to lower the cost of producing material and labor. Vectorcal being one of the major companies in the drone navigation system it is slow and costly and hence has to establish a competitive ground for the proposed companies such as Air high communication systems that are willing to take over the drone navigation system. As in the diagram, the value for manufacturing is classified as $100,000 and $250000 for material and labor respectively. Vectorcal has to have clear calculations to establish that the costs being incurred are not higher than the profit. But since it is a costly company, the manufacturing cost classification for material and labor are greater than other company’s production costs. My decision for this classification is that vectorcal should reduce the value of manufacturing this enabling it to produce faster services at a low price and gain profit. The lower the manufacturing cost, the more affordable the product and service will be and a very fast pace hence creating a very competitive market in the drone navigation system (Murphy, 2009). In cost accounting, the recording of a liability, an asset, or equity investment is involved initially in the cost principle. The principle is used to record transactions, since it is the simplest and convenient to use the original purchase price (Bhattacharyya, 2006). Most companies such as vectorcal use more or less the same cost principles for the development of the company financially. If the market value of the asset is lesser than the initial cost, a distinction on the concept would be to allow the recorded cost of a given asset to be lesser than the initial cost (Bhattacharyya, 2006). Nonetheless, revaluing an asset upward is a concept that this variation does not agree to. As a result, an exultantly conventional view of the cost principle is the lower of cost or market concept. The most justifiable way of using the cost principle is for the temporary assets that are not in use for long, and liabilities. It is because an extended ownership of them for their values to alter past their settlement will not be in the entity. Different companies have a different way of utilizing cost principles. Here mainly focusing on vectorcal, which just as any other company has its different way of believing the most important principle and the least significant. There are different types of cost principles such as allowability, allocability, and consistency. All this principles are essential in business (Bhattacharyya, 2006). Vectorcal does not follow the allocability principle due to it slow and costly nature. It is the major company in the drone navigation system, and it tends not to major in allocating the costs efficiently. Other businesses such as the Air high communication system will fully utilize the principle since it wants to be a competitive company to vectorcal. The most important principle to any business is allocability. How a company initially allocates is manufacturing costs determines how successful it will be at selling the product and it being a customer’s choice.
Bhattacharyya, A. K. (2006). Principles and practice of cost accounting. New-Delhi: Prentice-
Hall of India.
Murphy, J. E. (2009). Guide to contract pricing: Cost and price analysis for contractors,
subcontractors, and government agencies (5th ed.). Vienna, VA: Management Concepts
Campanella, J. (1999). Principles of quality costs: Principles, implementation, and use.
Milwaukee, Wisc: ASQC Quality Press.
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