Develop A Company And Determine What It Will Produce And Sel

Develop A Company And Determine What It Will Produce And Sell The Req

Develop a company and determine what it will produce and sell. The requirement for this company is that it be a high-end, special-order type of manufactured product. Complete the following in a Word document of 1,000 words (APA format): Develop a list of inputs along with their associated costs, such as labor, materials, and overhead. You can research this information, make it up, or do a combination of both. Be specific as to costs. You are to determine the selling price. Show your calculations, and discuss why you have determined this to be a good sale price. How many items of your product will you need to produce to meet this sale price? How did you calculate this? Determine which of the costing systems discussed in this class will work best for your company. Explain why. Explain why those not chosen were not a good fit for your company. You must explain "why not chosen" for a minimum of 3 costing methods. Please devote at least 1 paragraph to the ethical considerations of costing methods.

Paper For Above instruction

In the dynamic landscape of high-end manufacturing, establishing a company that produces custom, specialty products necessitates meticulous planning regarding costs, pricing strategies, and appropriate costing systems. This paper outlines the development of such a company, focusing on input costs, pricing mechanisms, production volume, and the justification for selecting suitable costing methods, while also considering the ethical implications involved.

Company Concept and Product Description

The company envisioned is a boutique manufacturer of bespoke luxury jewelry boxes designed for affluent clients. These jewelry boxes are handcrafted from premium materials such as exotic woods, sterling silver fittings, and interior velvet linings, reflecting exclusivity and craftsmanship. Each piece is custom-made according to individual client specifications, emphasizing personalization and meticulous artistry. This specialization positions the company within the high-end, custom manufacturing niche, requiring precise costing and pricing strategies to ensure profitability while maintaining exclusivity.

Input Costs and Their Estimation

Accurate costing begins with identifying every input involved in production. For this luxury jewelry box business, the key costs include raw materials, labor, overhead, and variable costs associated with customization.

1. Raw Materials:

- Exotic wood veneer: $50 per unit

- Sterling silver fittings: $30 per unit

- Velvet lining: $15 per unit

- Adhesives, glue, nails: $5 per unit

Total raw materials per unit: $100

2. Labor:

- Skilled artisan work: estimated at 8 hours per box at a rate of $40/hour, totaling $320

- Quality control and finishing: 2 hours at $40/hour, totaling $80

Total labor cost per unit: $400

3. Overhead:

- Factory rent, utilities, and equipment depreciation allocated per unit: $50

- Administrative expenses: $20

- Marketing and sales expenses: $30

Total overhead per unit: $100

Summing all costs, the total estimated cost per jewelry box stands at:

$100 (materials) + $400 (labor) + $100 (overhead) = $600

Additional costs, such as shipping and special packaging, could add approximately $50 per unit, bringing the comprehensive cost to $650 per unit.

Determining the Selling Price

To establish the selling price that ensures profitability, the company must incorporate a markup that covers costs and provides an acceptable profit margin. Assuming a target profit margin of 50%, the initial calculation is:

Selling price = Total cost per unit / (1 - profit margin)

= $650 / (1 - 0.50)

= $650 / 0.50

= $1,300

Thus, the suggested retail price is approximately $1,300 per jewelry box. This price aligns with the luxury segment, where clients expect premium pricing commensurate with artistry and exclusivity.

The rationale behind this pricing is rooted in market research indicating that similar high-end products are sold within the $1,200 to $1,500 range. Given the bespoke nature, craftsmanship, and quality materials, setting the price at $1,300 maintains competitiveness while ensuring adequate profit margins.

Production Volume and Break-Even Analysis

To determine production volume, the company must cover fixed costs and variable costs per unit. Assuming fixed monthly costs are $10,000 (including rent, salaries, and marketing), the break-even point is:

Break-even units = Fixed costs / (Selling price - Variable costs per unit)

= $10,000 / ($1,300 - $650)

= $10,000 / $650

≈ 15.38 units

Therefore, the company must produce and sell at least 16 units per month to break even. To achieve profitability and growth, targeting 25-30 units per month would be advisable.

Costing System Selection and Justification

Several costing systems are suitable for this custom manufacturing environment, including Job Order Costing, Process Costing, Activity-Based Costing (ABC), and Standard Costing.

The most appropriate system for this bespoke product company is Job Order Costing, which allocates costs to individual orders or jobs. This method suits high-end, custom products due to the variability and specificity of each jewelry box, enabling precise tracking of costs per order.

Why Job Order Costing is the best fit:

It provides detailed cost information for each unique product, facilitating accurate pricing and profitability analysis per custom order. This system is flexible, accommodating the variability inherent in bespoke manufacturing, where each jewelry box may have different materials, design complexity, and labor requirements.

Others not chosen:

- Process Costing: This system aggregates costs by processes or departments and averages them over units produced. It is less suitable here because each jewelry box is unique, rendering process-level averaging inaccurate for custom, specialized products.

- Activity-Based Costing (ABC): While ABC provides precise overhead allocation by identifying activities and assigning costs accordingly, it can be complex and costly to implement for a small-scale luxury business. It may be overly detailed and unnecessary given the relatively small number of different activities in this context.

- Standard Costing: This system involves pre-established standard costs for products, which may lead to inaccuracies in a custom manufacturing environment where costs fluctuate based on individual specifications. It is less adaptable to bespoke products with highly variable inputs.

Ethical Considerations in Costing Methods

Ethics in costing is crucial because it directly impacts financial reporting, pricing, and stakeholder trust. Transparent and honest allocation of costs ensures that the company does not manipulate figures to appear more profitable or competitive than it truly is. For instance, overstating costs to justify higher prices compromises integrity, while underreporting costs could mislead investors and customers. Ethical costing requires adherence to accounting standards, full disclosure of cost components, and avoidance of cost-shifting practices that could distort financial outcomes. Maintaining transparency fosters trust and sustains long-term business relationships, especially within the high-end market where clients value integrity and exclusivity.

Conclusion

In designing a high-end, custom jewelry box manufacturing company, precise cost estimation, strategic pricing, and suitable costing system selection are fundamental to success. The use of job order costing aligns with the unique, bespoke nature of the product, providing detailed cost insights that support profitability and ethical standards. Carefully balancing costs, prices, and ethical practices ensures the company’s competitive edge and reputation in the luxury market.

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