Cost Classification and Pricing Student Name Student University Cost and Price Analysis Cost Classification According to Maier, L. (2005), cost classification refers to the separation of different expenses in various categories. The classifications of costs are required for any firm in order to accurately track and account for the allocation of varies types of cost categories. For Hawk-eye, cost classification is crucial since it plays an important part in determining the price of the navigation system.
The total overall cost of the navigation systems shares a erect relationship with all indirect and direct cost associated with the end product.
For example, the price shall be inclusive of manufacturing, marketing, research and development expenses. Below are the categories of costs for Hawk-eye: Reasonable cost Reasonable cost refer to the cost that given its quantity’ and nature and is comparable with what any other reasonable company will incur provided it is in the same industry and operating under similar circumstances (Thomas, 2012).
Hawk-eye’s cost reasonableness would be transparent to the government, and shall not fall outside of what any prudent person would seasonably pay for a similar item.
Allowable cost Allowable cost, are the cost that are used in connection with contracts and grants that are sponsored by the federal government. Such costs include salaries as well as fringe benefits, supply of materials, capital equipment, and maintenance/service agreements. Hawk-eye will have a Defense Contract Audit Agency (DACCA) approved Cost and Accounting Standard whereby all allowable cost will have a clear audit trail.
Allocable cost A cost is said to be allocable if the involved goods and services can be signed to the particular project that is sponsored in line with the benefits that the project receives. For instance, if a cost is fully charged to a project that is sponsored, the project has to be the only one that benefits from the particular goods and services that are received. All of Hawk-eye’s allocable costs are necessary for the overall operation of the business; additionally they are incurred specifically for the contract effort, and benefit the contract and other contract work.
Variable cost These are costs that change depending on either output or revenue. Such costs include; distribution costs, energy usage, raw material cost, labor, etc. Hawk-eye?s variable cost such as labor, will increase proportionally as output volume increases. Fixed cost Fixed cost, refer to costs that do not change; they are not affected by revenue or output. Examples include top- level management cost, insurance, rent, and interest. Hawk-eye’s fixed cost shall include property taxes, property insurance, and executive staff salaries.
Semi-variable cost These are expenses that are partly fixed and partly variable. Telephone bills re an example, there is a fixed amount that is paid periodically and a variable amount paid depending on the usage. Hawk-eye’s semi-variable will be captured in a separate cost allocation. Price analysis Thomas, the author of Strategy and Tactics of Pricing argued that pricing is an element that is crucial for any business organization as far as price analysis is concerned.
Before Hawk-eye could establish prices, there are a number of cost factors to be considered. First, the cost of the product and/or service should be considered. This ensures that losses are avoided (Thomas, 2012). Second, the competitors prices and similar products and services should also be analyzed in order to establish a basis of price fair and reasonableness. This creates a healthy and competitive business environment. Similarly, the expectations of potential customers should be considered as well.
The price range should be within a range that your target consumers can comfortably afford. There are two objectives of Hawk-eye’s pricing, which are minimization of profit as well as revenue. Profit minimization entails setting prices at the highest possible level, so as to increase profits in the short-term, while venue minimization entails setting prices at the lowest level possible to meet higher sales volume (Thomas, 2012) Price analysis In determining the price of a given product, it is wise to consider specific elements of the cost.
The method used to price especially when contracting with the government determines the interest of the government in the company. Hawk-eye adopted the method below: Comparable to the price sold to the Federal Government The Federal Government usually engages into contracts with organizations to establish prices of products that the government is interested in buying. These are considered fair and reasonable. This method attracts the government to enter into a contract with particular companies.
Cite this University Cost and Price Analysis
University Cost and Price Analysis. (2018, Mar 21). Retrieved from https://graduateway.com/cost-classification-pricing/