Assignment 2: Price Analysis for the Navigation System
Professor Stephen Bartorillo
BUS 315: Cost and Price Analysis
July 26, 2015
Analyze your company’s cost classification for pricing of the navigation system. Defend your cost classification to the US government.
Considering that our only competitor in the field of navigation systems is VectorCal, it was important for us to carefully determine pricing that was, not only competitive enough to beat the competition, but affordable enough to increase customer demand. Our Analysts have worked diligently in reviewing the cost to manufacture our product from all different angles and scenarios in order to create a price that meets the terms of the contract and allow us to
…show more content…
When it comes to allocable costs, we feel that this contract effort makes sense for the government to pay because the costs incurred for these systems are the best in the business and have been carefully analyzed to make this contract worth paying for. Like all variable costs, our variable cost pattern fluctuates according to the total volume of work that we do. If volume drops then variable costs are low and if volume increases then the amount of materials increases which then causes for our variable costs to rise. The rent paid for our facilities, insurance, management salaries, and taxes are all fixed costs that remain the same regardless of the amount of production. Eventually, we look forward to becoming the only navigation systems provider for the government in order to outgrow our facilities and move to a much larger one. Once that happens, our fixed costs will then increase because of the amount of rent charged, insurance needed to cover damages, increase in management staff, and the price we pay in taxes. Our utility costs that are generated from running the facility, are semi-variable costs because we have paid a certain fixed cost just to have the electricity available, but will continue to pay that cost even if we don’t flip a single switch in the facility (Murphy, John Edward; Guide to Contract Pricing, pg. 55).