Management and Decision Making
Management is continually confronted with the tough option of decision making. As a result, the classification of costs becomes crucial to influence the decisions taken. Costs can then be listed in terms of output, manufacturing rate, preparation, and decision making. In this respect, costs could be either indirect, primary, constant, contingent, or semi-variable.
Cost Classification
Around the same time, the expense may be normal or budgeted to assess product quality. In the same way, direct and indirect expenses allow the company to decide which accounting scheme is better tailored to achieve the objectives set. In return, premiums will be high, based on cost estimates. In other words, more cost estimations would mean higher prices of the systems.
Maintaining Low Overheads
Although challenging, the company has to find ways of maintaining low overheads to get high returns with low product prices. However, since direct and indirect costs cannot be avoided, they could be adjusted to meet the requirements. For instance, managerial bonuses which are part of semi-variable costs could be removed as a means of lowering total costs (Drury, 2013). Eventually, actual costs should be lower than the standard costs. As required by the government, the firm should operate on low costs that result in low product prices that are fair and reasonable to be accepted when bidding tenders. Therefore, econometric measures of forecasting would be necessary to ensure there is low pricing.
Costs
Essentially, some of the initial costs will reduce while others are removed after the first start-up phase of any given company. Nonetheless, semi-variable costs such as performance incentives might increase to improve overall functions. In the same regard, fixed costs will remain as they were initially irrespective of the changes in output. For instance, salaries and rent will be fixed as variable direct costs change with regards to changes in output. As a result, the unit selling price should be more than the unit variable price for there to be increased productivity (Sebik, 2016). On the other hand, sponsors and the government determine allocable and allowable costs. Respectfully, salaries and occupancy costs must be acceptable and on reasonable terms as required by the government. This is to make sure that no unnecessary costs are incurred to increase product prices.
Price Analysis
In order to get government tenders, firms are required to use local resources at set operational costs that increase their likelihoods of winning federal tenders. According to the Buy American Requirement Act, federal contracts should be availed to firms that use domestic resources in their production. Since my company intends on winning government tenders on navigation systems, our products must be designed locally using domestically-available resources. Therefore, the low costs of procuring the resources would mean that the firm would, in turn, sell the navigation systems at low and reasonable prices. Therefore, price analysis would be convenient when comparing lump sum costs.
Government Requirements
Ideally, reasonable and fair prices would be set by comparing competitive prices and applying yardsticks such as dollars per pound. This would be effective in recognizing any inconsistencies that may influence changes in product prices that are not in line with the terms of the federal contract (Maddox, J., & Fox, 2015). Price analysis would also include market changes and inflation when comparing current proposed prices to previous prices that were offered in the production of navigation systems. All in all, the government requires the firm to set reasonable prices after factoring in all necessary elements during the analysis.
References
Drury, C. M. (2013). Management and cost accounting. Springer. Retrieved from https://books.google.com/books?hl=en&lr=&id=l2gFCAAAQBAJ&oi=fnd&pg=PR19&dq=costs+could+either+be+indirect,+direct,+fixed,+variable,+and+semi-variable.+At+the+same+time,+costs+could+be+standard+or+budgeted+to+determine+performance+efficiency&ots=EsFdyyjxu0&sig=L4zsywWvxGEeZeHWEqyOnHaYLQE
Sebik, J. P. (2016). Accounting for alternative energy investments. The journal of equipment lease financing (online), 34(1), 1. Retrieved from http://search.proquest.com/openview/0f968aa1725368828b56233d3ea292ee/1?pq-origsite=gscholar&cbl=29215
Maddox, J., & Fox, P. (2015). Price analysis on commercial item purchase within the department of navy (Navy post-graduate school monetary CA graduate school of business and public policy). Retrieved from http://oai.dtic.mil/oai/oai?verb=getRecord&metadataPrefix=html&identifier=ADA625228
