Understanding of the nature of cost, the link between physical processes of manufacture, or service provision, and cost incurrence, and the problems likely to be encountered in product or service cost measurement - Essay Example

Contents Contents 2 Introduction 3 The Topic in Context 3 Conclusion 7 Work Cited 8 Understanding of the Nature of Cost, the Link between Physical Processes of Manufacture, or Service Provision, and Cost Incurrence, and the Problems likely to be encountered in Product or Service Cost Measurement Introduction Any product is usually accompanied by the term cost. Cost is a combination of all the expenses incurred with the aim of achieving organizational goals. For products, cost will mean a monetary measurement of resources used as materials, labor, and overheads.

On the hand, cost for a service will mean the monetary sacrifice made to provide the service. In services and products, accountants usually combine cost with other descriptive terms, for example, historical, product, prime, labor, or material. All the latter terms define some characteristics of the cost measurement or an aspect of the object being measured. The Topic in Context In order to take a product to the market the cost incurred in the same must be calculated. It is from such a calculation that the price of a specific product will be established.

In most cases, the process of determining the cost is faced by some challenges and this may lead to either under or over pricing (Sherman, 13). When it is under pricing then the organization makes loss while when it is over pricing the organization makes huge profits at the expense of the customers. Cost measurement must therefore be done perfectly so that the pricing of the product is at its best. In this case, a product will be identified and it will be a drink. This will be a natural drink.

Since it is a food product then the marketing of the same must be done to perfection since it will be competing with other drinks like the ones from the coca cola company that are in the whole world. It is very competitive to market a food product thus this will require a lot of technicality. In making the drink, the various processes that will be incurred are the inputs. This is for instance provision of raw materials. The raw materials that will be required in this will be fruits. Three fruits have already been chosen.

They are mangoes, oranges, and bananas. The latter are the first hand products that will be required. At first, the cost of purchasing the raw products will be incurred. After this, the cost of labor will be incurred since this will have to be transported to the company. In the manufacturing, labor will be required since there must be workers who will be working to produce the final product. The cost of the latter has also to be accounted for. After the processing of the drink, there will be bottling.

This will still need labor. Another resource that will be used in manufacturing the product is time. Time must always be to the minimum thus, there is a need to account for the time used so that in future ways of making the time least can be done (Sherman, 14). Other resources that will be required will be direct raw products that will be used in making the drink. This will be pure water, drink flavors, and preservatives. The most preferred preservative is sodium benzoate so that the health of the consumers is not affected since there are some food preservatives that have been proved unhealthy for human consumption.

After manufacturing the product, the next thing will be marketing of the product. This is crucial since it will determine the importance of the manufacturing. In this, there are variety tasks that will be involved so that the product may be able to reach customers in the estimated places. One thing that will be done is market segmentation and positioning. The places where the products will be marketed must be defined. These must be areas with potential markets of such a product. In order to be perfect in market segmentation and positioning, there will be a need of consumer research.

This will be done either during manufacturing or immediately after manufacturing so that it does not interfere with anything else in preparation for sale. There will also be test marketing. This will test the demand of the product in the positioned areas. When the demand is already known, then this will help to streamline the supply chain. Branding is also required. The company will establish a long-term method that it will use to brand its products by establishing a number of brand names that will be used in future to name products.

In all the latter there will be need of transport means (Sherman, 22). This must have been planned for before starting the business and the expenses must be calculated. In this case, there are different costs that will be incurred; to begin with, we have the cost that will be incurred in holding meetings. At the onset of the business, there must be planners who will be involved to lay a good strategy for the product. In addition to this, there is setting up of the physical structure that will be called the company.

This will involve costs in construction and purchasing of land. There will also be costs for buying the equipments that will be used. In general, all the latter will be named the initial costs. This will be done as one calculation and then the final figure given (Sherman, 20). There will be costs incurred in manufacturing and marketing. This will be combined together since there are some components in the two that will be put under one category. In both, for instance there is cost that will be incurred in pricing labor.

This will be referred as labor costs and they will begin from all the workers involved in the manufacturing and marketing. There will also be transport cases since in both cases there will be transport expenses. In manufacturing, the transport cost will involve the one incurred in transporting the raw materials while in marketing it will involve transporting the finished products to the market. The latter will be termed as indirect expenses since they may not have direct impact to the pricing (Sherman, 25).

We will still have the costs that will be involved in branding, consumer research, and market segmentation and positioning together with market entry strategies. Although they may not be high, they will still need to reflect on the total cost. They will, therefore, be referred to as activity costs (Sherman, 27). The prices have been classified as per unit. This will be crucial since they will be able to determine where there was overspending or under spending so that in future they can find ways of improving in such.

This will be established by putting the different activities together as it has already been done for instance having the initial costs that will comprise a number of tasks performed at the onset of the business. This will however not be easy since some of the activities will occur from the start to the end. A good example is transport since in each case transport will have to be accounted for (Sherman, 29). If we account transport in manufacturing and marketing, then we will other expenses in the same for instance the fuel that will be used by the heads of the business.

Some of the expenses may also be difficult to establish and this may still affect the total cost. After getting all the costs incurred either directly or indirectly, then they will be added to come up with the total cost. The total cost will be used for pricing. The organization will calculate the drinks that have been manufactured. After this, they will divide the total cost by the number of drinks. This will be used in pricing where they will add a certain percentage to the figure they get for each drink.

The added figure will be the profit. They have to do this perfectly so that they do not incur losses. This will be pricing and then they will be able to take the product to the positioned areas (Sherman, 30). Conclusion In conclusion, starting of any profitable business will need good cost analysis. Cost will be accounted for from the word go until the product is in the market. The costs incurred are grouped so that there is ease in calculating them. They are then summed up to get the final total cost.

The total cost is usually used to determine the price of the product. All the latter will require careful analysis. The pricing should be done in such a way that the consumers will not be much exploited. The business should also make reasonable profits. All these will determine much about the success of the business in future. The leaders in the business must therefore try to perfect in everything. Work Cited Sherman, Andrew. “Franchising and Licensing Two Powerful Ways to Grow Your Business in Any Economy”.

New York: AMACOM Div American Mgmt Assn, 2011. Pp. 10-35.