Price analysis for the navigation system
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VectorCal Navigation systems use a pricing strategy that entails to the business intention to ensuring they primarily recuperate the cost of operation by focusing on reaching a specific set of target margins, so that the company remains relevant in the perfect competitive market (Rajasekaran & Lalitha, 2011). Pricing methods generally focus on the commoditization process hence to ensure that the new company meets customer satisfaction as the core principle; the company will use a value-based pricing approach. Cost classification is equally important in implementation of the pricing strategy. The company primarily depends on the decision making process to successfully achieve business goals. The manager who is a previous VectorCal executive in conjunction with the other executives will affect the cost of production by directly playing the part of issuing directives that determine acquisition of resources to necessitate the production process.
The exception of uncontrollable costs will be factored into the price of the product in consideration of dynamism of the navigation system market (Jagolinzer, 2000). Due to the variable cost of production of the navigation drones, cost will fall under “control ability” classification. The application of “cost ability” cost classification is justified by nature of the perfect competitive market ensuring the business realise profit in the long-run considering that it is new with relatively the same cost obligations such as taxes and tariffs required of other businesses (Jagolinzer, 2000).
Cost is generally the expense that company will incur to accomplish tasks set by the business objectives (Rajasekaran & Lalitha, 2011). The different characteristics of cost all play a part to the successful transition of the business after completion of the start-up phase. Reasonable cost refers to referencing cost incurred to the normality another company undertaking a similar objective would incur if the circumstances were similar in all perspectives (Murphy, 2009).
Reasonable costs the company will incur will be a reference of costs other existing companies incur including VectorCal to accomplish production objectives. An average of the costs determined will formulate a reasonable estimate for production costs (Murphy, 2009). Reasonable cost will include salaries for management, labour and raw materials to ensure that the company does not over pay or underpay but rather find a point of balance equitable to that of other companies and conducive for the business transition phase. Allowable cost refers to costs set by company principles to manage business proceedings so that company policies remain effective and cost of operation remains manageable (Murphy, 2009). Allowable costs determined by company include miscellaneous expenses, office supplies and meals. Allocable cost refers to dynamic costs that the company can revise periodically through analysis of factors such as benefits received to the company through an activity (Murphy, 2009). The company allocable costs will be a reference to performance of employees where salaries will be liable for increment in reference to performance. Activities of production directly increasing company recognition and profit such as advertising will also have an allocable cost estimate basis. Variable cost entails to the different cost that the company will incur to accomplish specific objectives in production output while fixed cost includes cost that remain unchanged irrespective of change in production output (Rajasekaran & Lalitha, 2011). Variable cost includes direct labour procured to accomplish tasks such as system update in the company while fixed costs include lease on company premises. A mix of variable and fixed cost results in semi-variable cost (Rajasekaran & Lalitha, 2011). An example of this cost is labour where employees receive a predetermined amount for working hours while also receiving a variable amount for extra working hours.
The purchase of any good or service is subject to price analysis and the most important part this analysis is verification of this price (Compton, 2010). The Federal Acquisition Regulation (FAR) has set forth a number of regulation methods to determine and analyse the price of a product or service that used enable companies determine optimal prices (Compton, 2010). Considering the competitive nature of the navigation system business between the new company and VectorCal, then the pricing analysis method to use will need to consider comprehensively this factor in determining the necessary pricing. Therefore, to ensure that a conclusive analysis is obtained, the best pricing analysis method relevant to this scenario is “comparison of competitive bids analysis method”. This is the best method to validate price of product for new companies through analysis of already existing companies that offer the same product or service. Through “comparison of competitive bids analysis method”, a reasonable conclusion to the price that a company can charge for a product can be determined.
The analysis method focuses on the total cost of acquisition to for comparison basis since the lowest bid does not necessarily represent the lowest cost of a product (Compton, 2010). By using the total cost of acquisition, variables such as cost of redesign cost and testing cost are factored into the analysis process to match a product standard to applicability irrespective of the cost of the product. This method ensures that the competitive nature of the two companies is considered in reference to the standard and quality of the two products.
Reference
Compton, P. B. (2010). Federal acquisition: Key issues and guidance. Vienna, VA: Management Concepts.
Jagolinzer, P. (2000). Cost accounting: An introduction to cost management systems. Australia: South-Western College Pub.
Murphy, J. E. (2009). Guide to contract pricing: Cost and price analysis for contractors, subcontractors, and government agencies. Vienna, VA: Management Concepts.
Rajasekaran, V., & Lalitha, R. (2011). Cost accounting. Delhi: Pearson.
