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• Describe three (3) key concepts you consider most important in the total cost of ownership.
Three concepts that are most important in the total cost of ownership are:
Pretransition Cost-which identify the need, qualifying sources and adding supplier to internal systems.
Transaction Cost- which is purchasing, inspection and administrative cost.
Post-Transaction- which includes defective parts, repairs and maintenance.
• Describe how price discounting would influence the understanding of purchasing as a profit
center.
Generally, price discounting facilitates retention of customers and also attracting new customers. This
statement concludes that there will be an increase in sales hence an increase in profits. It also ensures
constant sales even during the low seasons.
• Explain what and how a small business can apply and benefit from the strategic cost
management. Give at least two (2) examples
Example of a cost management technique that can be used is reducing cost overheads. One of the moves that
can be made to reduce overhead cost is reducing the number of workers hence decreasing salary expenses.
The small business can also manage the costs effectively by adopting modern technology. Advanced modern
technology is likely to increase the quality as well as the quantity of the products or services provided by the
business.
• Describe one (1) of your business negotiation experiences. Explain how your negotiation impacted
directly and/or indirectly to the profit and/or the expense of your company or organization. If you do
not have business negotiation experience, describe one (1) business negotiation experience you
observed or learned about.
I have witnessed many negotiations that businesses have made with their client and which resulted in
increased profits while others resulted in losses. For example, there was a cleaning company that negotiated
with a particular company in town and agreed to reduce the services by 20%. The experience resulted in a
significant loss which causes the cleaning company to terminate the contract. The reason for the failure was
due to an increase in overheads costs such as salaries and other materials that were used in cleaning which
exceeded the amount earned.
References:
Langfield-Smith, K., Smith, D., Andon, P., Hilton, R., & Thorne, H. (2017). Management Accounting: Information
for creating and managing value. McGraw-Hill Education Australia.
Johnson, P., & Flynn, A. (n.d.). Purchasing and Supply Management (The Mcgraw-hill Series in Operations and
Decision Sciences).
Thank you for posting your initial post early in the discussion week. Can you provide some more detail in
your three chosen concepts? What are each one, why are they important, and why do you consider them as
key concepts? What is an example of each concept?
Can you provide some detail in your section that discusses cost management? Can a company just reduce the
number of employees and decrease their costs in order to lower prices? What concepts of total cost of
ownership could be applied to reduce costs over the entire operation thus allowing products and services to
have lower prices? I would like to think about this subject deeper than simply cutting human
resources. Please also provide more information and detail about technology advancements and how it can
be used to manage costs. For example, could a new technology cost more than originally thought? For
example, Tesla cars are popular for not using fossil fuel but what if you live in a high electrical cost area? How
much is it to repair a Tesla? For example, a cracked windshield in a Tesla costs thousands of dollars to
replace. A failed battery in an electric car is very expensive to replace. Are the fuel savings really worth the
high cost of paying to maintain the technology?
Hello Class,
Three (3) key concepts that are most important in the total cost of ownership are:
Inspection, Testing, and Warranties. The government has the right to inspect not only the
final product, but also anything along the way and, in fact, even before the work starts. It’s
not only up to the government to make sure the work complies, but the contractor has the
obligation too. A surprise government inspection is clearly allowed. All the work done
under the contract can be inspected at any time and place, and the government can use any
reasonable test to determine whether the work satisfies the contract requirements.
Inspections and tests are paid for by the contractor. Government contracting assumes that
the costs of inspections and tests are included in the contractor’s prices. And if the
inspection does not go off at the time arranged, the contractor is responsible for any
additional costs that the government incurs because the tests are rescheduled. (O’Connor,
& Wangemann, 2013, p. 323).
Under the warranty, the government has to prove that the contractor did it wrong and that
the defect existed at the time it was accepted. The government must show that the
contractor was given timely notice of the defect, the affected work was the contractor’s
responsibility, and the government did not cause or contribute to the failure. The
contractor isn’t necessary off the hook when the warranty expires. The contract clauses
typically say that any remedies under the warranty clause are in addition to those given
under the inspection clause. (O’Connor, & Wangemann, 2013, p. 323).
Price discounting can influence the understanding of purchasing as a profit center
due to risks associated with giving discounts. A company will set profits based on
whatever it believes it can get after considering the cost of doing the work. If the market is
highly competitive, the company will set an initial price based largely on what it believes its
competitors would charge. It will then examine its own costs to do the job and decide
whether the profit that would result is worth the effort. It will trim its estimated costs very
closely and may set very narrow profit aspirations. It will then set an asking price intended
to be just under its competition. The degree to which it will go depends very heavily on
how much it needs the business. In extreme cases, the company may seek only to recover
its variable costs and some part of its fixed cost. When a company goes to this extreme, it is
losing money. (O’Connor, & Wangemann, 2013, p. 183).
Price is a major factor in cost management. In order to control price, a business must
first control costs. Therefore, small businesses can apply and benefit from the
strategic cost management from proper cost accounting, and cost
classifications. Cost accounting is a procedure which enables firms to keep track of the
costs that apply to each individual contract or major task they undertake. It provides
businesses a means to know which product lines are profitable or incur losses. It estimate
the cost of work before actually undertaking it; It track the cost incurred for doing a
specific work task; and it help the company decide whether or not to continue in certain
product lines or services. For example, the government places a cost-reimbursement
contract with a firm, it is important for the government to be sure that the costs billed to it
are a direct outgrowth of the costs incurred for that government contract. One (1) major
cost classification is: Variable, Fixed, and Semi-Variable costs. Variable costs are expenses
that go up and down depending on the total volume of work. Labor and material costs
incurred as a direct result of doing work are the most common examples of variable costs.
Fixed costs remain pretty much the same regardless of the amount of production. Building
rent is an example. The rent will remain the same whether the company is producing no
work or 100 units. Semi-Variable Costs are costs that are partly fixed and partly variable,
depending on the amount of production being done. For example, utility costs we will pay a
certain fixed cost just to have electricity available, and we will pay that even if we don’t
turn on a light bulb. (O’Connor, & Wangemann, 2013, p. 51-55).
One (1) business negotiation experience I learned about: Let’s say that I am selling my
house at an advertised price of $300,000. If you offer me anything close to my asking price,
$290,000 for example, I will think that you have a lot more to spend. You have raised my
expectations. I will kick myself, because I didn’t ask for $350,000 instead of $300,000. So
even if I receive my full asking price, I may still be dissatisfied, “I should have asked for
more.” Now, suppose your first offer is only $240,000 which is an extreme position relative
to the $300,000 listing. I may abandon my hope of getting the asking price of $300,000. If
we eventually settle at a price of $258,000, I will feel good because I succeeded in getting
you to move up from $240,000. Think about this: I will be more satisfied with $258,000
than I would have been in the first scenario with $300,000. This is because of how you
made your concessions. (Brodow, 2006, p. 82).
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