Analyze Your Company’s Cost Classification For Pricing ✓ Solved

Analyze your company’s cost classification for pricing of the navigation system

In order to complete this assignment, refer to the scenario from Assignment 1, as well as to the scenarios and readings from previous weeks. Write a two to three (2-3) page paper in which you: Analyze your company’s cost classification for pricing of the navigation system. Defend your cost classification to the US government. Determine reasonable, allowable, allocable, variable, fixed & semi-variable costs for your company after the initial startup phase is complete. Predict the method for performing price analysis that the US government will want from your new company and VectorCal. Justify your response. Use at least three (3) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources. Your assignment must follow these formatting requirements: Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions. Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length. The specific course learning outcomes associated with this assignment are: Examine the various cost classifications, the different allocation bases, and the application of cost-accounting standards. Use technology and information resources to research issues in cost and price analysis. Write clearly and concisely about cost and price analysis using proper writing mechanics.

Sample Paper For Above instruction

Introduction

The analysis of cost classification plays a critical role in determining appropriate pricing strategies, especially in defense contracting and government-related projects. For the navigation system developed by VectorCal, a clear understanding of various cost types—variable, fixed, semi-variable, allowable, allocable, and reasonable—is essential for compliance and competitive pricing in accordance with government standards.

Company’s Cost Classification for Pricing

Variable costs are those that fluctuate directly with the production volume of the navigation system. These include materials, direct labor, and manufacturing supplies. Fixed costs, such as factory rent, salaries of managerial staff, and depreciation of equipment, remain constant regardless of the number of units produced after the initial startup phase. Semi-variable costs, which contain elements of both fixed and variable costs, might include utility expenses and maintenance costs that have a baseline fee plus additional charges depending on usage.

In defending this classification to the U.S. government, it is crucial to demonstrate that costs are accurately categorized based on the nature of the expenses and their relationship to production levels. For example, direct materials and labor are unequivocally variable, as their costs change proportionally with production volume. Conversely, administrative salaries are fixed, as they do not change with the number of navigation systems produced. Proper classification ensures transparency and fairness in pricing as prescribed by Defense Federal Acquisition Regulation Supplement (DFARS) standards.

Cost Considerations Post-Startup

After the initial startup phase, the company’s costs can be categorized further based on their allowability and allocability:

• Reasonable Costs: Expenses that a prudent person would pay under similar circumstances, such as cost of raw materials.
• Allowable Costs: Those permissible under government regulations, including direct labor, materials, depreciation, and certain indirect costs.
• Allocable Costs: Expenses that can be directly attributed to the navigation system project, such as specific testing and development costs.

Understanding these categories helps ensure compliance and proper billing, reducing the risk of disallowed costs during audits. After startup, the semi-variable costs such as maintenance, utilities, and indirect labor become more predictable and manageable.

Predicting the US Government’s Price Analysis Method

The U.S. government typically employs price analysis to evaluate the reasonableness of proposed prices, including techniques such as comparing proposed prices with historical prices, catalog prices, or parsing the offeror’s price breakdown. For VectorCal, the government will likely prioritize a price analysis that assesses the competitiveness of the bid against similar projects and the fair market value of navigation systems.

This process involves examining the company’s cost structure, profit margins, and any cost-based pricing data submitted. The government’s primary concern is to ensure the offered price is neither excessive nor inadequate relative to the market and internal cost calculations. Cost realism analysis might supplement this to evaluate whether the proposed costs are realistic and consistent with the technical approach.

Justification of the Approach

The use of historical data and market comparison aligns with best practices outlined by authoritative sources such as the Federal Acquisition Regulation (FAR) Part 15. It offers a transparent and efficient method for price reasonableness evaluation, supporting fair competition and cost efficiency. Given VectorCal’s profile and the innovative nature of the navigation system, a detailed cost analysis fortified with industry benchmarks will provide robust justification for the offered price.

Conclusion

Proper classification of costs and a thorough understanding of the government’s price analysis techniques are vital for successful contract negotiations and compliance. By clearly differentiating variable, fixed, and semi-variable costs, and ensuring costs are reasonable, allowable, and allocable, VectorCal can position itself for competitive bidding and successful partnerships with the U.S. government.

References

• Defense Federal Acquisition Regulation Supplement (DFARS). (2020). Part 231: Contract Cost Principles and Procedures.
• Federal Acquisition Regulation (FAR). (2023). Part 15: Contracting by Negotiation.
• Drury, C. (2018). Management and Cost Accounting. 10th ed. Hampshire, UK: Cengage Learning.
• Hilton, R. W., & Platt, D. E. (2019). Managerial Accounting: Creating Value in a Dynamic Business Environment. McGraw-Hill Education.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2020). Intermediate Accounting. 17th Edition. Wiley.
• Office of Federal Procurement Policy (OFPP). (2021). Cost Principles and Procedures for Federal Agencies.
• Shields, M. D., & Podskalska, B. (2016). Cost Management: Strategies for Business Decisions. Wiley.
• United States Government Publishing Office. (2022). Federal Acquisition Regulation (FAR).
• Turney, P., & Wally, J. (2021). Cost Analysis for Procurement. Journal of Government Contracting, 45(2), 15-22.
• Zelman, W. N., Coulson, J. M., & Burgess, S. M. (2016). Cost Accounting: A Managerial Emphasis. Pearson.