Develop A Company And Determine What It Will Produce 897414

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.

Paper For Above instruction

In the dynamic landscape of high-end manufacturing, establishing a company that specializes in custom, premium products demands meticulous planning, precise costing, and strategic pricing. This paper aims to develop a comprehensive model for such a company—focusing on defining inputs and costs, establishing a suitable selling price through detailed calculations, determining production quantities, evaluating different costing systems, and addressing ethical considerations associated with costing practices.

Company Concept: The envisioned company specializes in handcrafted luxury leather handbags, tailored for a niche affluent clientele. Each handbag is a bespoke piece, emphasizing superior craftsmanship, exclusive materials, and personalized design options. The entreprise's mission centers on delivering unparalleled quality, exclusivity, and customer satisfaction, positioning it firmly within the high-end, custom-order market segment.

Development of Inputs and Costs: The primary inputs for manufacturing these luxury handbags include high-grade leather, hardware and embellishments, labor, and overhead costs. Based on market research, supplier quotes, and industry standards, the following estimated costs are identified:

• Leather materials: $250 per handbag
• Hardware and embellishments: $50 per handbag
• Labor costs: Skilled artisans requiring $25 an hour, with an estimated 10 hours per handbag, totaling $250
• Overhead costs: Including workshop rent, utilities, maintenance, estimated at $75 per bag

In addition to these, there are miscellaneous costs such as packaging (~$20), quality inspection (~$15), and transportation (~$10). Summing these, the total estimated cost per handbag is approximately $420.

Pricing Strategy and Calculations

To establish a profitable yet competitive selling price, the company applies a markup based on target profit margins and market positioning. Assuming a desired profit margin of 50%, the preliminary selling price is calculated as follows:

Selling Price = Total Cost / (1 - Profit Margin) = $420 / (1 - 0.50) = $420 / 0.50 = $840

This $840 price point reflects the premium nature of the product, aligns with high-end market expectations, and ensures the company achieves its profit objectives.

Production Quantity and Cost Recovery

To meet the sales price and ensure profitability, the company estimates its break-even point and optimal production volume. Assuming fixed costs—such as equipment, marketing, and administrative expenses—total $50,000 per year, and variable cost per unit is $420, the company determines the number of units needed to break even:

Break-even units = Fixed Costs / (Selling Price - Variable Cost) = $50,000 / ($840 - $420) = $50,000 / $420 ≈ 119 units

To attain a profit margin and scale production profitably, the company plans to produce and sell around 150 handbags annually, which also provides pricing flexibility and audience scaling.

Analysis of Costing Systems

Among the various costing systems discussed—Job Order Costing, Process Costing, Activity-Based Costing (ABC), and Standard Costing—Job Order Costing aligns best with this company's business model. Since each handbag is a unique, custom product requiring specific materials and craftsmanship, job order costing facilitates accurate tracking of costs per individual item. It allows precise allocation of materials, labor, and overhead directly to each order, supporting customization and profitability analysis.

Reasons for Not Choosing Other Costing Methods

• Process Costing: Not suitable because it is designed for mass production processes with homogeneous products, and our handbags are highly customized and produced in small batches.
• Activity-Based Costing (ABC): While ABC offers precise allocation of overhead costs based on activities, it may be overly complex for small-scale production with fewer products. The company's limited product range makes ABC less practical.
• Standard Costing: This system relies on predetermined standards, which may not accurately reflect the costs of bespoke, artisanal products. Variability in customization and craftsmanship makes standard cost estimates less reliable for pricing and profitability analysis.

Ethical Considerations of Costing Methods

Ethically, the choice of costing method significantly impacts financial transparency, pricing fairness, and stakeholder trust. Using accurate and reflective costing methods ensures that pricing is fair and not misleading to customers or stakeholders. Overstating costs could unjustly inflate prices, damaging reputation and trust, while understating costs may conceal true expenses, leading to unethical profit margins and potentially neglecting fair wages and working conditions for artisans. Ethical costing practices must prioritize accuracy, transparency, and fairness, ensuring that all stakeholders—from suppliers to customers—are treated equitably. Companies should avoid manipulating cost data to present a distorted financial picture, which could mislead investors or clients and undermine the company's integrity.

Conclusion

Launching a high-end, special-order manufacturing enterprise such as bespoke luxury handbags necessitates detailed cost analysis, strategic pricing, and judicious selection of costing systems. Job order costing emerges as the most suitable approach, given the customization and small batch production nature. Ethical considerations are paramount to ensure transparency and fairness in cost management. By meticulously balancing costs, quality, and ethical practices, the company can position itself as a reputable leader in the luxury manufacturing sector, aligning profitability with integrity.

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