The value chain includes costs associated with research, product design, production, marketing, sales, distribution, and customer support after the sale. Which areas of the value chain do you think should be included in calculating product costs? Why? Where would the other costs be reported (if at all)? What is the cost behavior based on the variability of cost variances and revenue volatility?
First mate:The value chainThe value chain represent all the process and activities help the create value to the final product. All the aspect of the value chine has impact directly or indirectly in the product is a cost associated.Analysing the value chain used for many objectives such as control and reduce costs for creating a completive advantage. Also the value chine can be create Value to the organization by differentiation.In my opinion, all the aeras of value chain should be included in calculating product costs whether manufacturing or non-manufacturing costs. Because it have an impact to the finish good or services price so its impact increase revenue or decrease the profit.The cost behavior is change in cost by change in activity. Understanding how cost behave is helping to manage and estimate costs. (Warren & Tayler, 2019)The variable cost is direct cost to the unit produced, in some cases that cost remine the same regardless of the volume of production. But in other cases that variable cost per unit has limited range of volume produced and it increase when the volume exceed that range and affect the revenue as a result.
Second mate:Cost accounting is an important aspect of management as is for investors and creditors. In the same way, value chain analysis offers insights into underlying opportunities for improvement and is hence a vital aspect of management decision-making. Truly, considering value chain analysis could help managers decide when to add or deduct value from the final product or service. In value chain analysis, costs are addressed among them being product costs. Product costs are those that are necessary for making the product. In this case, all direct material costs, direct labor costs, and manufacturing overheads are included (Warren, & Tayler, 2019; Keythman, 2019). Direct material costs are the costs of materials used to make the product and can directly be traded to the product. For example, wood is a material for making guitars and hence such costs would be included as a direct material cost. In the same way, Direct labor costs are also included as part of the product costs. Direct labor costs entail the total costs incurred in paying the workers who assemble a product. Direct costs can then be categorized as wages, payroll taxes, and contributions for worker?s compensation insurance, among others. Adding these costs will give the total direct labor costs to be considered in calculating product costs.Another cost added is the manufacturing overheads. These are costs deemed necessary in making a product but the costs cannot be directly traced to any specific product (Keythman, 2019). Among the costs that may be included are factory supplies, electricity, and power, property taxes and insurance, salaries of maintenance personnel, and janitorial staff wages, among others. These costs should relate to manufacturing function.Given that product costs are those incurred when creating a product, it would be simpler to generalize the costs included in the value chain. As such, the value chain entails costs relating to research, product design, production, marketing, sales, distribution, and customer support after the sale. In categorizing these costs, one can argue that research, product design, and production directly affect the product or so incurred to make the product. Hence, these aforementioned costs can be viewed as part of the product cost. The rest of the costs say marketing, sales, distribution, and customer after sales can then be viewed as period costs. Period costs in this case are the costs that are not included in the product cost and are not tied to the production process (Warren, & Tayler, 2019).Given the magnitude of costs as identified earlier, there is a possibility that costs seemingly change with the changes in business activities. Cost variances will more than often cause changes to the total costs and will be reflected on either product costs or period costs. More costs will reduce revenue and fewer costs will increase revenue hence deductible that volatility of cost variance has a direct correlation with revenue volatility. Collectively, it would be arguable that there are favorable and unfavorable variances. Favorable variances will help managers gain revenue while unfavorable cost variances inform the manager of the need to allocate funds in a way that improves revenue. Therefore given the variability of cost variances and revenue volatility costs could increase or reduce to have a negative or positive impact respectively.