Vector Cal is the only company with a government that produces drone navigators for the federal government. Its overhead costs are analyzed into fixed costs, variable costs, semi-variable costs and fringe benefits. Other businesses like Zylaene travels only examine their costs into fixed costs and variable costs. Classification of costs attempts to group cost according to their common characteristics or features. There are several methods that businesses use to allocate costs in order to carry out an analysis of their overheads. The costs can be assigned according to the element of cost, according to the relation with product and according to behavior. For example, Classification according to behavior
1) Fixed costs: These costs remain constant irrespective of the level of output for example rent.
2) Variable costs: these are costs that change with the degree of activity for example fuel, raw materials.Classification according to the relation between the products
1) Direct costs: These costs can be identified with the final product, for example, direct material.
2) Indirect costs are costs that cannot be directly identified with the final product for example rent. The three methods used to classify costs above show that some cost can be traced throughout the production process while others cannot be directly determined. Some other expenses are constant while other vary with the level of output. Therefore, it is necessary to classify costs since they are different and some are hard to trace. The cost analysis of Vector Cal can be used to support its contract with the Federal government as it provides the fringe benefits of its employees that the government directly caters for and provides for the predictive costs that they are likely to incur in future. If the cost analysis related to Vector Cal’s contract changed, they would have to cut on the subcontracting costs and produce the navigators themselves because they would be interested to increase production at the lowest costs possible. The advantages of operating a small business when it comes to general and administration expenses are; small businesses do not incur manufacturing costs. It is easier to adjust a small business when the market of a product changes. The most important advantage is that the owner of a small business can reduce administrative costs quickly than a large company. General and administrative expenses for small and big business are both recurrent and significant for both a small or large corporation. The only difference is that large companies incur more administrative costs than small firms do because they require more personnel to run them on a daily basis.
References
Clark, J. M. (1923). Studies in the economics of overhead costs. Chicago, Ill: The University
of Chicago Press.
Yulia, P., & Alena, D. (2014). TOPICAL ASPECTS OF ACCOUNTING OF OVERHEAD EXPENSES. (English). Skhid, (2), 35.
