This Assignment Is A Continuation Of The Previous Assignment

This assignment is a continuation of the previous assignments where you

This assignment is a continuation of the previous assignments where you will focus more on your company, Universal Drones Inc., and VectorCal. You will make more assumptions on specific types of costs. Compare your company with VectorCal relative to the price of the acquisition, semi-variable costs, and allocated direct and indirect costs of the drone navigation system. Justify the response.

Write a 2–3-page paper in which you:

Analysis of Universal Drones, Inc.’s expenses

Analyze and provide examples in detail the following costs that both Universal Drones and VectorCal will incur when contracting with the government:

  • Labor costs
  • Manufacturing costs
  • Research and development
  • General administrative expenses

Analysis of Direct and Indirect Costs

From the previous section, define and indicate which costs will be direct and which will be indirect.

Direct costs

  • Labor
  • Manufacturing
  • Research and development
  • General & administrative expenses

Indirect Costs

  • Labor
  • Manufacturing
  • Research and development
  • General & administrative expenses

Allocation Methods

Discuss the following cost allocation methods and indicate which ones that Universal Drones, Inc., and VectorCal would use. Remember to provide a rationale for each of these methods:

  • Units of production method
  • Machine hour method
  • Direct labor hour method
  • Direct labor cost method

Paper For Above instruction

Introduction

In the highly competitive and technologically advanced drone industry, cost management and accurate allocation of expenses play a vital role in securing government contracts and ensuring financial sustainability. This paper evaluates the expenses incurred by Universal Drones Inc. and its competitor, VectorCal, focusing on acquisition costs, semi-variable costs, and the allocation of direct and indirect costs associated with drone navigation systems. It aims to compare the two firms' financial strategies for contracting with the government using appropriate cost analysis and allocation methods.

Cost Analysis of Universal Drones Inc. and VectorCal

Universal Drones Inc. operates in a niche market providing advanced drone navigation systems tailored for government projects. Its costs include direct expenses such as labor, manufacturing, research and development (R&D), and administrative expenses, alongside indirect costs like overheads related to general administration and manufacturing support. VectorCal, as a competitor, faces similar costs but may differ significantly in the pricing of the acquisition and the structure of semi-variable costs due to differences in scale, operational efficiency, and technology.

Acquisition Price Comparison

In comparing purchase prices, Universal Drones' technological maturity and proprietary innovations may justify a higher acquisition cost compared to VectorCal, which might rely on more standardized components. The acquisition cost encompasses the purchase of equipment, intellectual property rights, and licensing fees. Universal Drones might have higher costs owing to its R&D investments, while VectorCal could offer a more cost-effective option due to economies of scale.

Semi-Variable Costs

Semi-variable costs, which include expenses such as utility costs, staffing that varies with production volume, and maintenance, are critical in evaluating operational flexibility. For example, Universal Drones may experience higher maintenance costs in its state-of-the-art manufacturing facility, whereas VectorCal might achieve savings through more optimized operational processes. These costs fluctuate with production levels but have an intrinsic fixed component that needs careful analysis.

Direct and Indirect Costs

Direct costs directly trace to the drone navigation system. For Universal Drones, direct labor involves skilled technicians assembling the navigation modules, while direct manufacturing costs include raw materials like sensors and processors. R&D costs directly fund innovation efforts specific to the navigation system and are allocated based on project scope.

Indirect costs, however, include shared expenses such as factory overheads, administrative salaries, and utility bills, which support multiple projects without direct attribution. For example, a portion of the engineering staff's salaries that support multiple projects would be classified as indirect costs.

Cost Allocation Methods and Rationale

Universal Drones and VectorCal must allocate costs efficiently to price their products competitively while maintaining profitability. The following methods are commonly recommended:

- Units of Production Method: Allocates costs based on the number of units manufactured. Suitable when costs are proportional to production volume, such as raw materials.

- Machine Hour Method: Assigns costs based on machine hours used. Ideal for manufacturing processes where machinery is a significant cost driver.

- Direct Labor Hour Method: Uses labor hours as the basis for allocating costs. Appropriate when labor is a primary cost factor affecting production.

- Direct Labor Cost Method: Allocates costs proportionally to direct labor costs incurred, aligning with labor-intensive processes.

Evaluation of Suitable Allocation Methods

Universal Drones Inc. might prefer the direct labor hour method due to its labor-intensive R&D and assembly processes, enabling precise cost tracking. VectorCal, which could rely more on automated manufacturing, might favor the machine hour method for its efficiency in allocating overheads. Implementing appropriate allocation techniques ensures fair distribution of costs, which influences pricing strategies and profitability analysis.

Conclusion

Effective cost management requires a comprehensive understanding of expenses and judicious selection of allocation methods. Comparing Universal Drones Inc. and VectorCal reveals differences in acquisition prices, semi-variable costs, and cost structures, all of which influence bidding strategies for government contracts. By applying suitable cost allocation methods—such as units of production, machine hours, or labor hours—both firms can enhance their decision-making accuracy, improve competitive positioning, and sustain operational profitability in the dynamic drone industry.

References

  • Drury, C. (2018). Management and Cost Accounting. Cengage Learning.
  • Heising, L. & Giacobbe, R. (2019). Cost Accounting Principles and Practice. Pearson.
  • Kaplan, R. S., & Atkinson, A. A. (2015). Advanced Management Accounting. Pearson.
  • Garrison, R., Noreen, E., & Brewer, P. (2018). Managerial Accounting. McGraw-Hill Education.
  • Hilton, R. W., & Platt, D. E. (2013). Managerial Accounting: Creating Value in a Dynamic Business Environment. McGraw-Hill Education.
  • Horngren, C. T., Sundem, G. L., Stratton, W. O., & Burgstahler, D. (2014). Introduction to Management Accounting. Pearson.
  • Block, P., & MacQueen, B. (2019). Cost Accounting: A Managerial Emphasis. McGraw-Hill Education.
  • Horngren, C. T., Harrison, W., & Oliver, M. (2015). Financial & Managerial Accounting. Pearson.
  • Magretta, J. (2012). Understanding Michael Porter. Harvard Business Review.
  • Shim, J. K., & Siegel, J. G. (2012). Cost Accounting. Barron’s Educational Series.

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