Analysis Of Universal Drones Inc.'s Cost Classifications ✓ Solved

Analysis of Universal Drones, Inc.’s Cost Classifications

This assignment continues with your analysis of your company, Universal Drones, Inc., and their different types of costs. Being discussed are various cost classifications and volume based costs. You will finish this assignment by discussing different pricing methods that the government can consider.

Write a 2–3 page paper in which you:

1. Analysis of Universal Drones, Inc.’s Cost Classifications

2. Analyze and provide examples in detail of the following cost classifications for your company:

• Reasonable costs.
• Allowable costs.
• Allocable costs.

3. Analysis of volume based costs

4. Analyze and provide detailed examples of how the following costs change depending on volumes produced by Universal Drones, Inc.:

• Fixed costs.
• Variable costs.
• Semi-Variable costs.

5. Pricing Analysis by the government

6. Assuming that a firm fixed price contract will be awarded, discuss the following pricing methods and indicate which one the government will probably choose:

• Comparison of proposed prices.
• Comparison of market based prices.
• Comparison of prior proposed prices.

Use at least three quality resources in this assignment. Note: Wikipedia and similar websites do not qualify as quality resources.

Paper For Above Instructions

Introduction

Universal Drones, Inc. is a pioneering entity in the drone manufacturing industry, focusing on innovative technologies and advanced features that enhance operational efficiency in various sectors, including agriculture, surveillance, and delivery. Understanding the different types of costs that impact their financial stability and pricing strategies is crucial to their success. This paper will analyze Universal Drones, Inc.'s cost classifications, volume-based costs, and pricing analysis methods that the government can consider.

Cost Classifications

Cost classifications are essential for businesses to understand their expenses and manage budgets effectively. For Universal Drones, Inc., costs can be categorized into three specific types: reasonable costs, allowable costs, and allocable costs.

Reasonable Costs

Reasonable costs are expenses that are considered necessary and justifiable under the circumstances. For instance, if Universal Drones, Inc. incurs expenses for research and development to create a new drone model, these costs are deemed reasonable as they contribute directly to the company's growth and product innovation. The precise definition of what constitutes a reasonable cost can vary, but it generally includes expenses that a prudent business would incur under like circumstances (Hansen & Mowen, 2015).

Allowable Costs

Allowable costs refer to costs that can be directly charged to a contract or project, as dictated by Federal Acquisition Regulations (FAR). For Universal Drones, Inc., allowable costs would encompass direct labor expenses, materials used in production, and overhead costs, which adhere to the guidelines set forth in government contracts. For example, if the company applies for a government contract to supply drones for public safety, the costs associated with production that comply with FAR would be allowable (Miller & McGowan, 2016).

Allocable Costs

Allocable costs are costs that can be assigned to specific projects or contracts in a reasonable manner. In the scenario of Universal Drones, Inc., costs linked to production facilities, utilities, and administrative support can be allocated based on the number of drones produced or the hours worked. For instance, if the company incurs costs in a facility used to manufacture multiple drone models, these costs would need to be allocated proportionally to the models based on usage (Garrison et al., 2020).

Volume Based Costs

Understanding how costs change with different production volumes is critical for any manufacturing entity. Universal Drones, Inc. must analyze three primary types of volume-based costs: fixed costs, variable costs, and semi-variable costs.

Fixed Costs

Fixed costs remain constant regardless of the volume of production. For instance, Universal Drones, Inc.'s rent for manufacturing facilities, salaries of permanent employees, and depreciation on machinery would continue to incur irrespective of whether the company produces 100 drones or 1,000 drones. As production increases, the fixed costs per unit decrease, leading to economies of scale (Miller & McGowan, 2016).

Variable Costs

Variable costs fluctuate directly with the level of production. These costs would include materials used in the manufacturing process and labor costs paid to workers who are compensated on a piece-rate basis. For instance, if Universal Drones, Inc. produces more drones, the materials required (like batteries and chassis) will increase proportionately, and hence, the total variable costs will rise (Garrison et al., 2020).

Semi-Variable Costs

Semi-variable costs, also known as mixed costs, contain both fixed and variable components. For Universal Drones, Inc., utility costs may fall into this category, where a base charge is fixed and a variable charge is incurred based on usage levels. As production increases, the firm may see higher utility rates triggered by increased operational activity (Colander, 2017).

Government Pricing Analysis

When the government considers awarding a firm fixed price contract, it must evaluate various pricing methods. Three primary comparisons play a critical role in their decision-making process: comparison of proposed prices, comparison of market-based prices, and comparison of prior proposed prices.

Comparison of Proposed Prices

In this analysis, the government will consider the prices proposed by Universal Drones, Inc. against its competitors. The firm must ensure that its proposed prices are competitive, reflecting reasonable costs while providing a margin for profit. Demonstrating lower proposed costs without sacrificing product quality can enhance the attractiveness of their bid (Aritua et al., 2015).

Comparison of Market Based Prices

The government will also evaluate how Universal Drones, Inc.'s pricing aligns with current market prices for similar products. Establishing a market-based price ensures that the firm remains competitive and can justify its pricing strategy. The company should conduct thorough market research to position itself favorably against established competitors while emphasizing its unique selling propositions (USPs) (Miller & McGowan, 2016).

Comparison of Prior Proposed Prices

Lastly, the government may assess pricing offers from Universal Drones, Inc. in previous contracts. This historical data can provide insights into pricing trends and help forecast cost expectations. The firm should maintain transparent records of past contracts and analyze pricing performance in relation to production costs (Garrison et al., 2020).

Conclusion

In conclusion, understanding cost classifications, volume-based costs, and effective pricing strategies is vital for Universal Drones, Inc. to maintain a competitive edge in the drone manufacturing industry. By leveraging reasonable, allowable, and allocable costs while also considering variable production expenses, the company can create a solid foundation for pricing analysis that government clients will appreciate. Future pricing strategies should focus on ensuring competitiveness while upholding quality performance to secure contracts successfully.

References

• Aritua, B., Dreiling, A., & Rizzo, A. (2015). Cost and Price Considerations. Government Contracting.
• Colander, D. C. (2017). Economics. McGraw-Hill Education.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2020). Managerial Accounting. McGraw-Hill Education.
• Hansen, D. R., & Mowen, M. M. (2015). Management Accounting. Cengage Learning.
• Miller, B., & McGowan, R. (2016). Understanding Cost Structures. Journal of Cost Management.