Discipline: Business Studies
Type of Paper: Discussion Essay
Academic Level: High school
Paper Format: APA
Each reply must be a paragraph long of at least 135 words or more not including references which should supported by citing at least 2 peer-reviewed journal articles between 2017-2021 for each reply. The 2 discussions that need reply will be posted below. Your replies must be in current APA format and must include a reference list. Make sure that you are adding new and relevant information with each reply. Reference sample make sure to include DOI-Drollinger, T., Comer, L. B., & Warrington, P. T. (2006). Development and validation of the active empathetic listening scale. Psychology & Marketing, 23(2), 161-180. https://doi.org/10.1002/mar.20105
Two cost management concepts that I have a deep interest in and would like to discuss are cost drivers and indirect costs. Cost drivers are “any factors that have an effect of changing the amount of total cost” (Blocher, et al. 2022). Cost drivers cover a wide spectrum of potential events which directly impact how much the consumer will pay for goods or services provided by a corporation or institution. Many market sectors are influenced by a wide variety of different factors that drive cost, to include litigation by local government affecting delivery of the product, production volume, environmental factors affecting supply chains and many. However, some researchers argue that the “driving force behind manufacturing overhead costs is not production volume but transactions dealing with logistics, balancing, quality, and change.” (Banker, et al 1995). Banker, et al (1995) explains that the level of complexity involved with the plant’s operations dictate how the end product will be affected.
The range of cost drivers impacting the cost of the final product are extensive and require meticulous analysis by the corporation, manufacturing firm or retailer. “Ignoring multiple cost drivers and/or attempting to bundle them together into an overall average total cost curve as is the case in Economics, can be, at best, unproductive and potentially dangerous” (Palowski, 2011). Palowski (2011) discusses Acitivity Based Cost (ABC) theory as a method to recognize the many cost drivers affecting the organization which are not driven by production numbers to mitigate unrealistic numbers for the final costs of products. ABC theory alleviates cost distortion and keeps organizations highly productive and efficient.
Indirect costs are “a cost that is not conveniently or economically traceable to a specific cost pool or cost object” (Blocher, et al. 2022). Blocher (2022) explains that the assignment of indirect costs are made by using cost drivers to better understand how to allocate the unknown costs associated with the complex nature of assembly, packing, supervision and final inspection. Boehmke, (2016) argues that in order to manage indirect costs, organizations must “understand how these costs behave relative to changes in operational resources and activities.” This requires organizations to assess how the indirect costs align best to the organizations missions and objectives by comparing the total direct costs of the item in proportion to the indirect costs allowing managers to control and influence both overall costs of the item.
The cost drivers & indirect costs in relation to strategic allocation of financial resources is of paramount importance to an organization. An honest and thorough analysis of both concepts is needed when creating a long term strategy to mitigate a distorted perspective of the overall costs associated throughout the entire manufacturing process and life cycle of the product. Keller (2012) states “Without the gospel of Jesus, we will have to toil not for the joy of serving others, nor the satisfaction of a job well done, but to make a name for ourselves.” Jesus helps us all better understand the bigger picture when strategizing for allocation of financial resources as well as the hidden costs of our actions in life and in business. “Whoever works his land will have plenty of bread, but he who follows worthless pursuits will have plenty of poverty." (King James Bible, 1769/2007 Proverbs 28:19). This passage from the bible can be applied to strategic allocation of financial resources through comprehending what drives costs and how not understanding indirect costs can lead an organization to a financial calamity.
In Genesis 1, Moses wrote “Then God said, ‘Let the land produce vegetation: seed-bearing plants and trees on the land that bear fruit with seed in it, according to their various kinds’ and it was so” (NIV, Genesis 1:11). Before the fall, God showed that he provided lands for his people to grow fruits and vegetables for food. God saw those lands of creation as good. God worked to create those lands and created humans to take care of his creations. After the fall, sin entered in, and those lands turned into work. We learn today through his word that God created work as a good thing in life, but his word displays what work entails. As I read Blocher’s techniques on financial allocations I relate to everyday farming, but also to what God writes about farming. Proverbs writes, “Be sure you know the condition of your flocks, give careful attention to your herds; for riches do not endure forever and a crown is not secure for all generations” (NIV, Proverbs 27:23-24). Value chain analysis and Activity-based costing are two techniques that identify ways to reduce costs and provide a competitive product to the customer. Combining what Proverbs writes and ow businesses operates bring activities back to the basics of attention to detail.
Blocher et al., (2018) explains value chain analysis to understand a firm's competitive advantage through reducing costs and better understanding the supply chain with suppliers (Blocher et al., 2018). Value chain analysis can be used for both a manufacturing company and a company that is providing a service. Essentially it takes each phase of production or step in the service to better understand the value of that phase. Searching along the way if that activity lines up with the competitive advantage that lines up with management’s strategy. Essentially a value chain analysis lists out the activities it takes for a firm to produce a product or service, then they go into listing them as most valuable to those that could be improved on (Nor et al., 2019). Nor et al., (2019) explains the importance of value chain analysis as, “The objective of carrying out such a value chain analysis is to identify the points where the product may be inefficiently passed on and the producer may be losing an opportunity to maximize market update (Nor et al., 2019). Value chain analysis is used to find the weaknesses in a business's production and to improve off them. A study was done on coffee that was grown in Ethiopia and the study was on the value chain of the product. Not only are value chains important to look at from a domestic standpoint, but it is also critical to review from a global standpoint or from an outsourcing standpoint. Value chain is used in this study to evaluate the global exposure that spreads across countries (Yilma & Ensermu, 2020). This study showed the problems in the value chain were relationships, access to the market, government policy, financial constraints, competition, and resources were the main problems (Yilma & Ensermu, 2020). As the study begins to dig into the issues, the researchers were able to allocate funds in certain areas to hopefully improve other areas the farmers were struggling in growing the beans. Increasing marketing initiatives will affect the other issues to drive those problems down for the farmers. Value Chain finds inefficiencies in production and allows for efficiencies to be implemented and save funds.
Activity-based costing is used specifically for the accuracy of cost determination. Essentially a cost-based system collects data to help with decision making. The activity-based costing has two parameters which are the capacity cost rate for a department and the capacity usage by each transaction processed in the department (ÖZyapıcı & Tanış, 2017). Activity-based costing is used to help managers reduce costs and reassign unnecessary costs elsewhere.
Referencing back to Proverbs, Soloman writes about being careful of the attention of your herds and flocks. Value chain analysis and Activity-based costing is what Solomon preaches. To be attentive to the activities in a business. We also have the responsibility to be attentive to the people around us in our jobs and lives in our actions. We should be diligent and a responsible farmer with the resources that God provides for us.