Question

Cost and Pricing - Many businesses are offering their products and services over the Internet. Find well known company and, determine the following:

1. A product (or service) description
2. A product price
3. Based on your responses to parts (1) and (2), along with the description of the company's business, identify the potential costs that are required to provide the product selected in part (1) and categorize them as fixed or variable.
4. Which product do you believe has the largest contribution margin per incremental unit sold?
5. Describe at least two types of standard costs your selected company might use. Additionally, explain the types of direct and overhead variances each of your selected organizations might encounter. Provide an example of each.

Answer 1

The Company that im selecting is Amazon and the Product is Kindle.

Amazon.com, Inc., is an American multinational technology company based in Seattle, Washington that focuses on e-commerce, cloud computing, digital streaming, and artificial intelligence. It is considered one of the Big Four technology companies along with Google, Apple, and Facebook.

The Amazon Kindle is a series of e-readers designed and marketed by Amazon. Amazon Kindle devices enable users to browse, buy, download, and read e-books, newspapers, magazines and other digital media via wireless networking to the Kindle Store.

The following are some of the costs involved in the business said earlier.

Fixed

• Domain charges which is a Yearly payment.
• Hosting Charges for the publications
• Employee Costs.
• Retainership Fees
• Utilities and renting. Energy, water, Internet, etc. Anything that you need to run your company in case to have a physical place.

Variable

• Marketing
• Data-warehousing, in case if you use a different server to store the eBooks. Depends on the quantity of eBooks and the bandwidth of data transfer.
• Bank charges for payments clearances
• subscription fees paid
• Direct labour costs
• Administration costs etc.,

Best Sellers are one of the product portfoilo of Amazon kindle which they aims to sell maximum number of units because best sellers are the one which has largest contribution Margin per incremental unit sold because of their over pricing.

Direct cost variance is the difference between the actual amount of a cost and its budgeted or planned amount which can be classified further into Direct material cost variance, Direct Labour cost variance.

For Example:

Direct Material Variance: The difference between the standard cost of direct materials specified for production and the actual cost of direct materials used in production is known as Direct Material Cost Variance. Material Cost Variance gives an idea of how much more or less cost has been incurred when compared with the standard cost. Thus, Variance Analysis is an important tool to keep a tab on the deviations from the standard set by a company.

Formula for Material Cost Variance = Standard Cost – Actual Cost

Let us assume that the standard direct material cost of widget is as follows:

2 kg of Raw Material A at 60 per kg ( = 120 per unit).

Let us assume further that during the given period, 100 widgets were manufactured, using 212 kg of A which cost 13,144.

Under those assumptions direct material price variance can be calculated as:

212 kg of A should have cost (× 60)		12,720
Actual Purchase Cost		13,144
Direct material (A) Cost variance		424

Direct Labour Variance: Labour Rate Variance is the difference between the standard cost and the actual cost paid for the actual number of hours.assume that the standard cost of direct labor per unit of product A is 2.5 hours x $14 = $35. Assume further that during the month of March the company recorded 4500 hours of direct labor time. The actual cost of this labor time was $64,800, or an average of $14.40 per hour. The company produced 2000 units of product A during the month. The labor efficiency variance is (4500 - 5000) x $14 = $7000, where 5000 hours = 2.5 hours x 2000 units of output.

Overhead cost variance can be defined as the difference between the standard cost of overhead allowed for the actual output achieved and the actual overhead cost incurred. In other words, overhead cost variance is under or over absorption of overheads.

Overhead Cost Variance:

Advertisement Expense:

Actual Output X Standard Overhead Rate per unit – Actual Overhead Cost or Standard Hours for Actual Output X Standard Overhead Rate per hour – Actual Overhead Cost

Overhead cost variance can be classified as:

(1) Variable Overhead Variance

(2) Fixed Overhead Variance.

Example: Lets Assume Advertisement expense per unit is incurred at 5 Per unit of sales and only 1000 out of 1500 units are sold recovering 5 Per unit Therefore Variance would be 2500.