Develop A Company And Determine What It Will Produce 658518

Develop A Company And Determine What It Will Produce And Sell

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: 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.

Assignment Guidelines: Add a section to your paper, outlining how you would implement capital budgeting in your company. Prepare an example of a decision that you would make using either the IRR or Payback method of analysis. Why would you use this for your business?

Paper For Above instruction

Creating a high-end, bespoke manufacturing company requires meticulous planning, especially regarding costs, pricing strategies, and investment evaluation. This paper explores developing such a company from inception, emphasizing the importance of cost analysis, appropriate costing systems, ethical considerations, capital budgeting, and decision-making methodologies like IRR and Payback period.

The first step involves identifying key inputs and their associated costs. Since the product is a high-end, custom-designed item—say, luxury bespoke furniture—the inputs encompass premium raw materials, skilled labor, specialized machinery, and overhead expenses. For illustration, assume the following approximate costs:

• Materials: High-quality hardwood (e.g., mahogany, walnut) at $300 per unit
• Labor: Skilled artisans earning $50 per hour, requiring approximately 20 hours per piece, totaling $1,000
• Overhead: Fixed costs such as manufacturing facility rent, utilities, and depreciation, aggregating to $200 per unit

The total cost per product thus sums to roughly $1,500. These figures can be refined with market research or made-up estimates aligning with the luxury market segment.

Determining the selling price requires factoring in desired profit margins, market positioning, and competitiveness. Suppose a target profit margin of 40%. The selling price (SP) can be calculated as:

SP = Total Cost / (1 - Profit Margin) = $1,500 / (1 - 0.40) = $2,500

Thus, the product would be sold at $2,500 to achieve a 40% profit margin. This price aligns with comparable luxury products, ensuring premium market positioning while covering costs and earning profit.

To determine how many units must be sold, consider fixed costs, variable costs, and total revenue. If fixed costs (e.g., machinery, admin expenses) amount to $100,000 annually, then the break-even point (BEП) is:

BEП = Fixed Costs / (Price - Variable Cost per unit) = $100,000 / ($2,500 - $1,500) = 100,000 / 1,000 = 100 units

Selling 100 units annually at $2,500 each would cover all fixed and variable costs. To generate profit, sales must exceed this quantity.

Regarding costing systems, Activity-Based Costing (ABC) appears most suitable for this high-end, customized production environment. ABC assigns overhead more accurately based on activities, which is vital when overheads are substantial and product-specific. Traditional costing methods, like simple absorption costing, tend to allocate overhead uniformly, which could distort cost accuracy.

Other methods like job-order costing, while related, might not sufficiently detail overheads for complex, bespoke products. Standard costing assigns standard costs but might not accommodate the variability inherent in custom manufacturing, leading to inaccuracies.

The ethical considerations of costing methods are significant. Accurate and honest cost allocation is essential for fair pricing, profit calculation, and financial reporting. Manipulating costing methods to inflate or deflate costs can deceive stakeholders, distort profit margins, or influence decision-making unethically. Companies must uphold integrity by applying consistent, transparent costing practices aligned with regulatory standards and ethical norms.

Implementing capital budgeting involves assessing potential investments and their profitability over time. A method such as the Internal Rate of Return (IRR) provides insight into the profitability of investment projects by calculating the discount rate that equates cash inflows and outflows. For example, suppose the company considers investing $50,000 in new machinery expected to generate additional annual cash inflows of $12,000 over five years. Calculating the IRR would help determine whether this investment exceeds the company's required rate of return, say 10%. If the IRR is 15%, the investment is financially attractive.

The decision to proceed would be based on IRR exceeding the threshold, indicating value addition. Using IRR in this context facilitates comparison among multiple projects and aids in prioritizing investments aligned with strategic goals.

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