Predict the main costs (e.g., labor cost, material cost) associated with the production of VectorCal’s drone navigation system. Provide a rationale for the response. Compare and contrast the direct and indirect costs associated with the drone navigation system that both your company and VectorCal would assume. Predict whether or not your company could easily control these costs and thus reduce production expenses. Justify the response. Compare your company with VectorCal relative to the price of acquisition, semi-variable costs, and allocated direct and indirect costs of the drone navigation system. Justify the response.

QUESTION

In order to complete this assignment, refer to the scenario from Assignment 1, as well as to the scenarios and readings from previous weeks.

Write a two to three (2-3) page paper in which you:

Predict the main costs (e.g., labor cost, material cost) associated with the production of VectorCal’s drone navigation system. Provide a rationale for the response.
Compare and contrast the direct and indirect costs associated with the drone navigation system that both your company and VectorCal would assume. Predict whether or not your company could easily control these costs and thus reduce production expenses. Justify the response.
Compare your company with VectorCal relative to the price of acquisition, semi-variable costs, and allocated direct and indirect costs of the drone navigation system. Justify the response.
Use at least three (3) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.
Your assignment must follow these formatting requirements:

This course requires use of new Student Writing Standards (SWS). The format is different than other Strayer University courses. Please take a moment to review the SWS documentation for details.
Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow SWS or school-specific format. Check with your professor for any additional instructions.
Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:

Outline the process to forecast the likely price of an acquisition, calculate semi-variable costs, and allocate direct and indirect costs.
Examine the various cost classifications, the different allocation bases, and the application of cost-accounting standards.
Determine how to validate costs and certify cost and pricing data.
Use technology and information resources to research issues in cost and price analysis.
Write clearly and concisely about cost and price analysis using proper writing mechanics.

ANSWER

Cost Analysis and Comparison: Your Company vs. VectorCal

Introduction

This paper analyzes the costs associated with the production of VectorCal’s drone navigation system and compares them to the costs your company would assume. Additionally, it examines the price of acquisition, semi-variable costs, and allocated direct and indirect costs of the drone navigation system in relation to both companies. By understanding these cost factors, it becomes possible to identify potential areas for cost reduction and optimization.

 Predicting the Main Costs Associated with the Production of VectorCal’s Drone Navigation System

When predicting the main costs associated with the production of VectorCal’s drone navigation system, several factors should be considered:

 Labor Costs: Labor costs play a significant role in the production of any product. These costs include wages, benefits, training, and supervision. Skilled technicians and engineers involved in the assembly, testing, and quality control of the drone navigation system are likely to contribute to the bulk of the labor costs.

Material Costs: Material costs comprise the expenses associated with acquiring the necessary components and raw materials for the production of the drone navigation system. These include electronic components, sensors, processors, batteries, frames, and other hardware required for the system’s functionality (Arafat et al., 2023).

Research and Development (R&D) Costs: R&D costs are crucial for developing innovative features and ensuring the system’s reliability. These costs encompass the salaries of R&D personnel, prototyping, testing equipment, software development, and intellectual property protection.

Overhead Costs: Overhead costs include indirect expenses that are not directly attributed to the production process but are essential for the company’s operations. Examples include rent, utilities, administrative salaries, marketing, and other general expenses.

Rationale: Predicting these main costs provides insight into the factors that impact the overall production expenses. Understanding labor and material costs allows for better resource allocation, while factoring in R&D costs highlights the investment required for product improvement. Recognizing overhead costs is crucial for accurate cost analysis and pricing decisions.

Comparing Direct and Indirect Costs between Your Company and VectorCal

Both your company and VectorCal would assume direct and indirect costs associated with the drone navigation system. However, the degree of control over these costs may differ:

Direct Costs: Direct costs are expenses that can be directly attributed to the production of a specific product or service. They include labor and material costs discussed earlier. These costs can generally be controlled to some extent by both your company and VectorCal through efficient supply chain management, strategic sourcing, and effective labor planning. Indirect Costs: Indirect costs are expenses that cannot be directly traced to the production of a specific product. They include shared overhead costs such as rent, utilities, and administrative expenses. The control over indirect costs may vary between your company and VectorCal based on their respective business models, economies of scale, and operational efficiency. Larger organizations like VectorCal may have better control over indirect costs due to their economies of scale and bargaining power with suppliers.

 Comparing Your Company with VectorCal on Acquisition Price, Semi-Variable Costs, and Allocated Direct and Indirect Costs

When comparing your company with VectorCal in terms of acquisition price, semi-variable costs, and allocated direct and indirect costs, the following considerations apply:

Acquisition Price: The acquisition price refers to the cost of acquiring the drone navigation system from VectorCal or developing it in-house (Castellano, 2017). VectorCal, being an established company with expertise in drone systems, might have a higher acquisition price due to factors such as R&D investment, economies of scale, and brand reputation. In contrast, your company’s acquisition price might be lower if it can develop the system internally or negotiate a favorable deal with VectorCal.

Semi-Variable Costs: Semi-variable costs are expenses that have both fixed and variable components. These costs can fluctuate with production volume or other factors. Examples include maintenance, repairs, and equipment depreciation. Both your company and VectorCal would assume semi-variable costs, but the specific breakdown and control over these costs may differ based on factors like production capacity, scale, and contract terms.

Allocated Direct and Indirect Costs: Allocated costs refer to the distribution of direct and indirect costs to specific products or services (C. Team, 2023a). VectorCal, with its established cost accounting practices, may have more accurate methods for allocating costs. However, your company can implement cost accounting systems to allocate costs effectively. The accuracy of allocated costs depends on the transparency and granularity of cost-tracking mechanisms employed by both organizations.

Justification: Comparing your company with VectorCal in terms of acquisition price, semi-variable costs, and allocated direct and indirect costs enables an evaluation of the competitiveness and cost-efficiency of your company’s approach to the drone navigation system. It provides insights into potential cost-saving strategies and areas for improvement.

Conclusion

Understanding the main costs associated with the production of VectorCal’s drone navigation system allows for informed cost analysis and decision-making. Comparing direct and indirect costs between your company and VectorCal highlights potential differences in cost control. By evaluating the acquisition price, semi-variable costs, and allocated direct and indirect costs, it becomes possible to identify opportunities for cost optimization and efficiency improvement. Strategic cost management can contribute to enhanced competitiveness and profitability in the production of the drone navigation system.

References

Arafat, M. Y., Arafat, M. Y., & Moh, S. (2023). Vision-Based Navigation Techniques for Unmanned Aerial Vehicles: review and challenges. Drones, 7(2), 89. https://doi.org/10.3390/drones7020089 

Castellano, F. (2017). Commercial drones are revolutionizing business operations. Toptal Finance Blog. https://www.toptal.com/finance/market-research-analysts/drone-market 

Team, C. (2023a). Cost allocation. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/accounting/cost-allocation/