Part One
NavPro Technologies LLC is in the manufacturing industry. Therefore, the rationale that will be adopted is the manufacturing accounting. Primary, to understand the costs, one will need to understand where the costs are incurred. The first batch of costs is the costs that are incurred during the process of production. These costs are further categorized as directs cost and indirect costs. Conceptually, it is understood that costs can also be categorized into the variable and fixed costs (Drury, 2000). However, for this section, the primary focus is on direct and indirect costs not variable and fixed. Therefore, the direct costs will be defined as the costs that can be traced to the costs of a given object while the indirect costs refer to the costs that are apportioned to the product but do not form part of the primary costs. In other words, indirect costs refer to the costs incurred in supportive roles in producing and selling a product as opposed to the costs incurred in bringing into existence the product (Hansen & Mowen, 2000). Therefore, with these facts in mind, the direct costs will include all the costs that are incurred in the actual development of the drones. Some examples include costs of raw materials, costs of labor in all factory departments and cost per machine hour. On the other hand, the indirect costs will include research and development costs, production overheads, marketing, salaries for the employee that are not directly working in the factory, office administration and any other costs that cannot be traced to the creation of the product (Drury, 2000).
Part Two
Fundamentally, the firms under considerations are in the same industry. Therefore, they produce similar products although they differ in their portfolio. Analyzing their costs by categories, the costs will have a high degree of similarity. For instance, with regard to direct costs, the firms will have direct material costs as one of their key direct cost. However, the difference can only be noted when the category is split up into constituent subcategories since it will be expected that the direct material used by the competing firm to produce products that NavPro Technologies LLC is not producing will not be present in NavPro Technologies LLC list of costs, except if such costs are incurred in other products that NavPro Technologies LLC produces. Nonetheless, it is possible to examine whether NavPro Technologies LLC can control some of this costs. Using the logic advanced in porters five forces theory, it is possible to control some of the costs. First, the firm can lower the power of the suppliers. One of the ways that the firm can tame the power of suppliers is choosing to manufacture key component for themselves instead of buying. Also, the firm can outsource but commit the supplier to terms that will limit the power of the supplier such as making the supplier manufacture components that are only used by the firm. Second, the firm can limit indirect costs through countering competitive rivalry (Forgang & Einolf, 2007). Utilizing the firm objective to gaining competitive advantage through quality product, progressive technical support and customer service among other strategies, the firm is gradually raising the costs of switching to competitors. Although this will not have a direct impact on costs, when viewing costs as a percentage of revenue, the percentage will be lower due to increased sales.
Part Three
Assuming that there are sufficient suppliers to the materials required by the firm, it follows that the firm has a bargaining chance to source the components at fairer prices or, at least, the market price. However, if the suppliers are not many and their capacity to supply is exhausted, it means that the firm will source these components at a higher price. The reason is that the supplier will need to incur additional costs to avail the components since production capacity will be a limiting factor, using the marginal costs of production concept (Forgang & Einolf, 2007). Examining the semi-variable, the costs will be determined by the productivity level. During early years, the semi-variable costs will be relatively higher than those of the other firms. However, the costs will be lowering as the firm increases its production and realizes the economies of scales as the other firms. Finally, considering the direct and indirect costs, the comparability can only be realized by considering the effect these costs have on the firm. For the indirect costs, the effect will be higher on the firm since most of these costs will be borne by a low number of units sold. However, this will change over time as productivity increases (Drury, 2000). On the other hand, the direct costs will have a lower effect on the firm due to the low level of production but will increase as production increases.
References
Drury, C. (2000). Management and cost accounting: Student's manual. Australia: Thomson Learning.
Forgang, W. G., & Einolf, K. W. (2007). Management economics: An accelerated approach. Armonk, NY: M.E. Sharpe.
Hansen, D. R., & Mowen, M. M. (2000). Management accounting. Cincinnati: South-Western College Pub.
