See below

Attached is previous assignment completed and case studies needed to assist with cost classification. 

Overview-Cost Classifications and Volume Based Costing

This assignment continues with your analysis of your company, Superstar Solar, Inc., and their different types of costs. Being discussed are various cost classifications and volume-based costs. You will finish this assignment by discussing different pricing methods that the government can consider.

In order to complete this assignment, refer to the scenario in the Introduction of New Solar Company Assignment where you discussed SolarCal and your company, as well as the scenarios and readings from previous weeks.

· Refer to the rubric for this assignment to become familiar with how your paper will be graded.

· Note: It is essential that you review your case analyses when completing this assignment. 

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Week 4 Case Analysis: Cost Classifications and Direct and Indirect Costs [DOCX]

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Week 5 Case Analysis: Obtaining Cost and Pricing Data [DOCX]

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Week 6 Case Analysis: Analysis of Direct Labor Costs [DOCX]

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This assignment continues with your analysis of your company, Superstar Solar, Inc., and their different types of costs. Being discussed are various cost classifications and volume-based costs. You will finish this assignment by discussing different pricing methods that the government can consider.
In order to complete this assignment, refer to the scenario in the Introduction of New Solar Company Assignment where you discussed SolarCal and your company, as well as the scenarios and readings from previous weeks.
· Refer to the rubric for this assignment to become familiar with how your paper will be graded.

· Refer to scenarios and readings from previous weeks to complete this assignment.

· Note: It is essential that you review your case analyses when completing this assignment. 
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Week 4 Case Analysis: Cost Classifications and Direct and Indirect Costs [DOCX]
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Week 5 Case Analysis: Obtaining Cost and Pricing Data [DOCX]
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Week 6 Case Analysis: Analysis of Direct Labor Costs [DOCX]
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Instructions

Write a 2–3-page paper in which you:

1. Analysis of Superstar Solar, Inc.’s Cost Classifications

. Analyze and provide examples in detail of the following cost classifications for your company.

. Reasonable costs.

. Allowable costs.

. Allocable costs.

· Analysis of volume-based costs

· Analyze and provide detailed examples of how the following costs change depending on volumes produced by Superstar Solar, Inc.

. Fixed costs.

. Variable costs.

. Semi-Variable costs.

· Pricing Analysis by the government

· Assuming that a firm fixed price contract will be awarded, discuss the following pricing methods and indicate which one the government will probably choose. Also indicate how your company will ensure that the prices will be reasonable for the government. Remember to provide a rationale for each of these costs

. Comparison of proposed prices.

. Comparison of market-based prices.

. Comparison of prior proposed prices.

· Use at least three quality resources in this assignment. Note: Wikipedia and similar websites do not qualify as quality resources.

BUS315 Week 4 SolarCal Case Analysis

Cost Classifications and Direct and Indirect Costs

Participants:

Sally- Intern

Dominic- CEO of SolarCal

Luke- Head of Productions

Jake- Head of Accounting/Finance

Melissa- Head of Government Contracting

Dominic: Good morning Sally!

How did everything work out with your job shadowing of Jake?

Sally: Good morning to you too! I had another very productive week working with Jake; he was very knowledgeable in the field of production processes. I also really enjoyed using the tablet he gave me to go through the major components of what his department does. I thought it was very helpful and allowed me to really focus on all of the different concepts he was covering.

Dominic: I’m glad to hear that you and Jake worked well together! Jake is a very valuable resource for us here at SolarCal and I’m happy he provided you with lots of information about some of our day-to-day operations and the industry as a whole.

This week you will be working with Jake again, only this time you will be learning about different cost classifications. I feel that these cost classifications are very important for you to understand because they go hand in hand with our production processes. By learning about these cost classifications you will really get a good foundation for how things work in our company.

Sally: That sounds great! I’m excited to work with Jake again and maybe I will even get to use one of his tablets again!

Dominic: Good morning Jake! I have brought Sally back to you to be a part of the special project you are working on. She needs to first learn about the different cost classifications. Can you get Sally up to speed on this information?

Jake: Sure thing Dominic! I have another presentation put together for Sally to follow along with.

Dominic: That is great! Thank you so much Jake! Sally, enjoy your time with Jake and we will talk later about you accomplishments this week. Take care!

Jake: As Dominic mentioned, we have a special project we are working on and I need to get you up to speed with some key concepts that we will be referencing.

Before we get started, grab a tablet and load the presentation I created for this week.

Sally: I’m all good to go!

Jake: Fantastic! Let’s begin!

Jake: Sally, what can you tell me about cost accounting?

Sally: 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. I recall reading that some forms of cost accounting are used by firms who are reasonably well established.

Jake, how do you think cost accounting is used by these firms?

Jake: That’s a great question! Cost accounting is used by firms in a variety of different ways such as estimating the cost of work before undertaking a project and tracking the costs incurred for doing specific work tasks. Please keep in mind though that under some conditions, the government is vitally interested in the adequacy of a firm’s cost accounting methods.

What do you think happens when the government enters into a contract Sally?

Sally: I recall that when the government enters into a contract where the final price that is paid is dependent on the actual costs incurred, we must be sure that the contractor has an adequate cost accounting system. Is that correct?

Jake: You are very correct! This brings us to our next point, the three major classifications of costs.

The first classifications of costs are reasonable, allowable, and allocable costs. According to federal acquisition regulations, a cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of a competitive business.

From the presentation what can you tell me about the determination of cost reasonableness?

Sally: I believe that the determination of cost reasonableness in specific cases requires skilled judgment and federal regulations that require the contracting officer to consider several questions.

Jake: Excellent! Some of the questions contracting officers may consider include: Is it the type of cost generally recognized as ordinary and necessary in the contractor’s business or in performing the particular contract? Or even, is the cost a significant deviation from established practice?

 

Sally: I can definitely understand why those would be key questions for contracting officers to focus on. There was something I wanted to share with you Jake… something I found interesting in your presentation.

I saw that there are fifty two generally applicable cost principles and noticed that each cost principle defines a particular type of cost and establishes it as an allowable cost, unallowable cost, or allowable cost with restrictions.

Could you explain this concept a little more, I feel like I haven’t quite grasped it yet?

Jake: I will gladly clarify this concept for you. Keep in mind that a cost is allowable if it is expressly identified as allowable in the cost principles. The cost must also meet the relevant tests for the terms of the contract or if it is not addressed in the cost principles, but still meets the requirements of the relevant tests.

Something else to keep in mind is that the decision for determining the allow-ability of a particular cost ultimately rests with the contracting officer. For example, here at SolarCal when we are making cost principle judgments, we try to work very closely with the knowledgeable administrative contracting officer and auditor to gain allow-ability.

Sally: That is very interesting indeed! I do have one more question. What happens if there is a difference of opinion after a contract has been awarded?

Jake: That is a very good question Sally! When there is a difference of opinion after a contract has been awarded, the results can be very disruptive. To try and combat this federal acquisition regulations suggest that contracting officers and contractors reach advance written agreements on how special or unusual costs will be handled when they do arise. Make a note that the agreements must be in writing and signed by the contracting officer and the contractor. It is equally important for both parties to be incorporated into the contract so that both parties are contractually bound.

 

Jake: Let’s now take a look at the second major classification of costs, which are variable, fixed, and semi-variable costs. Sally, what can you tell me about variable costs?

Sally: Well if I recall, variable costs are expenses that go up or down depending on the total volume of work. A couple examples of variable costs that I remember would include the labor and material costs incurred as a direct result of doing work. I do know however that the total labor cost goes up as the output increases; as well as the total cost of material rising as the production volume increases and falls as the volume decreases.

Jake: You hit the nail right on the head, excellent response! Let me tell you a little about fixed costs. Fixed costs remain the same regardless of the amount of production. Building rent would be an example of this where the rent would remain the same whether the company was producing no work or fifty units or even one hundred units.

Sally: I think I have a good understanding of semi-variable costs. Can I explain these costs?

Jake: Sure thing! What do you have for me?

Sally: I’m pretty sure semi-variable costs are costs that are partly fixed and partly variable, but I think this depends on the amount of production being done. I feel that utility costs would serve as a good example. I know that for my utility costs I pay a certain fixed cost just to have my electricity available, and also have to pay even if I don’t turn the lights on.

Jake: Very good Sally! I really liked your example and the connection you made with this concept. We are now going to move on and talk about the final classification of costs.

Jake: We will now discuss the third and final classification of costs. This classification deals with the direct and indirect costs. Please understand that all costs may be classified as either direct or indirect. However, federal acquisition regulations define direct cost as any cost that can be identified specifically with a particular final cost objective. On the flip side, federal acquisition regulations also define indirect cost as any cost not directly identified with a single, final cost objective, but identified with two or more final cost objectives or an intermediate cost objective.

Go through the presentation and look at the section on direct costs, what do you see?

Sally: I see that direct labor and direct materials are classified as direct costs. It says that the direct labor cost is the expense incurred for people who can be specifically identified with contract work. It also says that direct materials are products that become a part of the finished work or are consumed in doing the work. That is very interesting, what about indirect costs?

Jake: Indirect costs may be divided into two categories. The first are overhead costs which are commonly the only indirect cost category used by small companies that are not engaged in providing widely different services or lines of products. For cases like these, the overhead consists of all the company’s general operating expenses. What do you think larger companies do then Sally?

Sally: I think the larger companies will typically have overhead expenses as well, but these larger companies will instead set up overhead cost pools for each of their operating divisions.

Jake: That is correct Sally, great job! Let’s move on to the second category of indirect costs which are the general and administrative costs. These costs typically involve the headquarters of a company where they may have expenses such as the salaries of the president and other company officers, office equipment, and utilities.

Sally: I read that the government recognizes that companies have direct and indirect costs, and I noticed that their policy is to pay for the reasonable costs of acquiring products and services, plus a reasonable profit. I also recall seeing that the government takes this view as long as the resulting price is itself fair and reasonable. I thought that was interesting.

Jake: Thank you for sharing that with me, I thought that was pretty interesting as well on how the government is involved throughout this process. To expand on your discovery a little more let me talk to you about some other federal regulations.

I first want you to keep in mind that the cost principles currently in place have been fine-tuned over many years through practice, usage, and interpretations of the Board of Contract Appeals and the Federal Courts. Sally, what do you think these federal acquisition regulations state?

Sally: I feel that the federal acquisition regulations would state that cost principles shall be used in pricing negotiated supply, service, experimental, developmental, and research contracts and contract modifications whenever cost analysis is performed. Looking through this presentation a little more closely I believe that the principles must be incorporated by references in contracts with commercial organizations. These references will in turn serve the purpose of determining reimbursable costs in cost reimbursement contracts, costs for termination purposes, and the pricing of changes.

Jake: Very good explanation and quite right you are. Another topic of importance is simplified acquisition procedures. Make a note that simplified acquisition procedures apply to purchases below the small purchase limitation, which is presently one hundred thousand dollars for all agencies. These procedures also do not apply to ordering from Federal Supply Schedules or to delivery orders placed against existing contracts. Is there anything else you would like to share Sally?

Sally: Yes, I read that the small purchase and simplified purchase procedures emphasize simplicity and minimal administrative costs. I think oral solicitations are normally used, but I think very simple written quotations may also be used under certain circumstances.

Jake: I’m glad that you shared your findings with me; you brought up some very important points.

I want to now talk about Cost Accounting Standards as they are something we at SolarCal utilize and are very important to understand. The Cost Accounting Standards are very complex and apply to relatively few contract actions. Keep in mind that the Cost Accounting Standards can be divided into the following categories:

Consistency and Modified Coverage Standards;

Cost Allocation Standards;

Asset Related Standards;

Labor Related Standards;

Material Related Standards; and

The Insurance Standard.

Sally: Thank you for going over that with me. Up until now I had never heard of Cost Accounting Standards, I will definitely take a closer look at these standards as I progress through my internship here at SolarCal.

Jake: It was my pleasure and good thinking on taking a closer look at those standards… they are quite important!

Now I know that we went over quite a bit of information today and I would now like for you to go through some interactive training materials to help build upon some key concepts from today’s lesson.

Jake: Semi-variable costs are costs that are partly fixed and partly variable, depending on the amount of production being done. An example of this would be utility costs. With utility costs, users pay for a certain fixed cost on top of a base charge.

Jake: Direct costs are defined by the federal acquisition as any cost that can be identified specifically with a particular final cost objective. Direct labor and direct materials are also classified as direct costs.

Jake: Indirect costs are defined by the federal acquisition regulations as any cost not directly identified with a single, final cost objective, but identified with two or more final cost objectives or an intermediate cost objective.

Jake: Simplified Acquisition Procedures apply to purchases below the small purchase limitation, which is presently one hundred thousand dollars for all agencies. These procedures however do not apply to ordering from Federal Supply Schedules or delivery orders placed against existing contracts.

Jake: Fixed costs are the costs that remain the same regardless of the amount of production. Building rent would be an example of this, where the rent remains the same regardless of whether the company produces work in any context.

Jake: Great job on the training materials, I really hoped they helped solidify all of the concepts we discussed today.

Let’s now summarize what we discussed during our time together:

First, we defined cost accounting, which is a procedure which enables firms to keep track of the costs that apply to each individual contract or major task they undertake. Do you remember the first set of the three major classifications of costs?

Sally: I recall that the first three major classifications of costs included reasonable, allowable and allocable costs. I learned that a cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of a competitive business. I then recall that a cost is allowable if it is expressly identified as allowable in the cost principles and meets the relevant tests for the terms of the contract or if it is not addressed in the cost principles, but instead meets the requirements of the relevant tests.

Jake: Excellent job Sally! We then identified the second major classifications of costs as including variable, fixed, and semi-variable costs. We saw that variable costs are expenses that go up or down depending on the total volume of work. While fixed costs remain the same regardless of the amount of production. We also saw that semi-variable costs are costs that are partly fixed and partly variable, depending on the amount of production being done.

Sally: I’ll take the last classification of costs, this section really interested me. This classification dealt with direct and indirect costs. I learned that any cost that can be identified specifically with a particular final cost objective, is an indirect cost. I also remembered that any cost not directly identified with a single, final cost objective, but identified with two or more final cost objectives or an intermediate cost objective, is referred to as an indirect cost.

Jake: Great job, Sally I can see you were really active during our discussion of that topic. I also told you to make a note about the government’s view of direct and indirect costs. We saw that it is the government’s policy to pay for the reasonable costs of acquiring products and services, plus a reasonable profit.

Sally: I definitely took some notes when you were going over the government’s view with those costs. You finished up the lesson by talking about Cost Accounting Standards; I thought this was very interesting. Could you go over this concept one more time?

Jake: I would be delighted! We went first went over how cost principles have been fine-tuned over many years and are utilized whenever cost analysis is performed. We also discovered that Cost Accounting Standards are complex and apply to relatively few contract actions.

Sally: I think I got it now! Thanks again for the review Jake! You were again very helpful this week and I feel that the more I’m with you the more I am learning.

I really think I’m beginning to get a better feel for not only what your department does here at SolarCal but also how the industry functions in the production phases of products.

Jake: It has been my pleasure working with you again and I look forward to many more visits from you. If there is anything else I can assist you with or even if you have any questions please come talk to me.

Until then, don’t forget to complete your weekly discussion questions based on your learning experiences this week.

Have a good rest of the day and I will see you soon!

© 2020 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of Strayer University.

BUS315

Week 5 SolarCal Case Analysis

Obtaining Cost and Pricing Data

Participants:

Sally- Intern

Dominic- CEO of SolarCal

Luke- Head of Productions

Jake- Head of Accounting/Finance

Melissa- Head of Government Contracting

Dominic: Welcome back again Sally! I hope you had another positive experience with Jake last week!

Sally: Thank you Dominic and yes Jake and I went over quite a lot of information last week pertaining to cost classifications used in his department.

Dominic: I’m glad to hear you had another great experience and learned even more about several key concepts related to the production field. This week I will be assigning you to work with Luke. Like Jake, Luke is another great resource for information about our company and the industry as a whole. The main theme for this week’s lesson with Luke will revolve around cost and pricing data. Please pay attention to what Luke goes over with you this week as I will be asking you to participate in a project later down the line that uses these concepts.

Sally: I’m really excited to get started and will definitely take notes on what Luke goes over.

Dominic: I’m glad to hear that, let’s now make our way down to Luke’s office.

Dominic: Good morning Luke! I have brought Sally here today to work with you on a special cost and pricing project we just got involved with.

Can you work with Sally and educate her on the key concepts she needs to learn in order to work on this project?

Luke: I would be delighted Dominic! Let me just get a few things in order first then Sally and I will begin our lesson.

Dominic: Thank you Luke! I will talk with you later Sally, you are in good hands for now.

Sally: Thank you both for your time!

Luke:

First off nice to meet you again Sally and I hope you are ready to learn about some exciting topics.

You may not know this Sally but my department is where the heart and soul of SolarCal resides! We are the reason SolarCal is so successful, with our painstaking practices of clean environments coupled with high quality detail orientated product staff.

Sally: This is fantastic! I definitely noticed when I came into your office that there was a lot going on and I remember seeing several staff members draped in white jumpsuits. Your department must really pay attention to detail and promote cleanliness.

Luke: I’m glad you observed this Sally. You are very correct, in my department we pay very close attention to detail and have our staff wearing these white jump suits to promote cleanliness while working on our solar panels.

I bet you didn’t know that our defect rate is less than point zero one percent for all units built. In the past eight years we have tested all of our solar panel systems created here and not a single defective solar panel system has departed from this floor to our very important customers.

Sally: Wow those are really amazing statistics for such a high tech device that is created. I want to thank you again for making time for me this week so I can learn more about obtaining cost and pricing data. Dominic tells me you are the expert in this field at the company.

Luke: I like to think of myself as an expert in a few areas here at SolarCal. What would you like to talk about first?

Sally: One question I had was, what do you see as a key issue in your department?

Luke: That is a great question! I feel that the most recent changes in the federal acquisition regulations significantly restricts the government’s ability to routinely request and obtain cost or pricing data is a large problem my department faces.

Sally: I could see why that would be a large problem in your department. What about the fundamental changes from past practice? What is that all about?

Luke: Well, there are two fundamental changes from past practices I’d like to share with you. The first is hierarchical preferences discouraging requests for cost or pricing data. You see that federal acquisition regulations concerning pricing policy contains a hierarchical preference for contracting officers to use in obtaining information to determine price reasonableness. This in turn has me spending a good part of my day providing this information to either the government contracting officer or the contracting office at the Department of Energy.

Sally: Very interesting! Can you explain in greater detail how you obtain the cost and pricing data?

Luke: Sure! The current policy shows a marked preference for reliance on price analysis techniques, rather than on cost analysis. Contracting officers usually won’t obtain more information than is necessary for determining the reasonableness of the price or evaluating cost realism. Keep in mind that federal acquisition regulations establish a general order of preference in determining the type of information required. First, price is based on adequate price competition. Secondly, information is related to prices. Thirdly, information other than cost or pricing data is needed and lastly cost or pricing data is also required.

Sally: That is a lot to remember for this process. I assume you have spreadsheets to track all of these?

Luke: Yes, let me show you.

Sally: What are some of the other changes that have occurred, with the federal government, in the past few years?

Luke: The second fundamental change from past practices is exceptions to cost or pricing data requirements. Please keep in mind that federal acquisition regulations prohibit contracting officers from obtaining cost or pricing data when the agreed upon price meets one of the following conditions:

It is based on adequate price competition;

It is set by law or regulation;

It is at or below the simplified acquisition threshold;

It is for the acquisition of a commercial item;

It is for the exercise of a contract option at the price established at contract award or initial negotiation; or

It is used solely to fund overruns or interim billing price adjustments.

Sally: That makes a lot of sense now! Are there any other changes?

Luke: Why yes there are! The next change has occurred in the cost analysis area. Make a note that when completing either a cost analysis or cost realism analysis, the buyer must have enough information from the contractor to intelligently evaluate some or all of the proposed costs.

Sally: Sorry to interrupt but I remember from my Strayer courses that federal acquisition regulations define cost analysis as the review and evaluation of the separate cost elements and profit in an offer’s or contract’s proposal. I also recall that the application of judgment is used to determine how well the proposed costs represent what the cost of the contract should be, assuming reasonable economy and efficiency.

Luke: Very right you are! To add to what you just talked about keep in mind that federal regulations list several cost analysis techniques and procedures. These federal regulations also include an evaluation of the effect on the offer’s current practices involving future costs and analysis of the results of any make-or-buy program reviews in the evaluating subcontract costs.

Sally: Quite interesting! I have another question though, how do you obtain all of the cost information you need to meet the government’s requirements?

Luke: Fantastic question! Well you see that when cost analysis is necessary to support a decision on price reasonableness or cost realism, the contracting officer may require an offer to submit cost information at any time prior to the close of negotiations. The preferred time for such a request is the original solicitation.

Sally: I think I recall the three areas that the solicitation specifies! I know that the first area is whether cost or pricing data is required and the format in which it is to be submitted. The second area is whether information other than cost or pricing data is required if cost or pricing data is not necessary. The last item deals with the necessity of pre-award or post-award access to examine the offer’s records.

 

Luke: Great response, you know more than I expected! To add to your response, using information other than cost or pricing data means that any type of information that is not required to be certified in accordance with federal acquisition regulations is necessary to determine price reasonableness or cost realism. Keep in mind though that the submission requirements for information other than cost or pricing data are much less demanding than the certified cost or pricing data. Sally what do you recall about the federal acquisition regulations for these concepts?

Sally: Well according to federal acquisition regulations, the cost or pricing data are all of the facts that serve as a reference to earlier dates that were agreed upon between the parties that were as close as practicable to the date of the agreement on price. I recall that as a result of this, prudent buyers and sellers would reasonably expect to affect price negotiations significantly.

Luke: Great job with that explanation! I have one more thing to add though. The instructions for preparing a contract pricing proposal when cost or pricing data are required will contain sections for general instructions, cost elements, and formats for submission of line item summaries. Make a note that the section for cost elements, for example, specifies various cost elements including royalties, direct labor, and indirect costs that must be broken down in the proposal.

Sally: How important is all of this information when you create a proposal for a new contract with the government?

Luke: That’s a good question. It is extremely important to review and prepare proposals in accordance with the instructions for preparing a contract pricing proposal when the contracting officer specifies that those instructions are to be used. Keep in mind that price proposals are estimates of future costs plus the anticipated profits. However, no reasonable person expects contractors to estimate the future exactly. Sally, what do you think these estimates are like?

Sally: Well, I think these estimates would be a combination of presently known information and judgments used to project expected costs from the presently known information.

Luke: How right you are! To add to your response, the proposal should provide enough supplemental information about the cost figures to make it possible for the government to analyze the pricing proposal in detail. For example, we know that the labor costs to produce a special-design government product a year ago were two hundred and fifty dollars per unit. We also know that the previous labor cost is based on factual information that appears in the cost accounting records; however, the information is now one year old. We can then determine we will have to raise labor pay so that each cost per unit is two-hundred-and three dollars.

Sally: That makes a lot of sense. You indicated earlier that you do have a rather small defect rate. What happens with the loss of profit from these navigation systems that will not be sent out to our customers?

Luke: Well, according to federal acquisition regulations, defective pricing exists when any price, including profits or fees, for any purchase action covered by a certificate of current cost or pricing data is increased by any significant amount because the data was not accurate, complete, or current. The action taken when there is reason to believe that submitted cost or pricing data is defective depends on whether the discovery is before or after the contract award. What do you think happens when defective data is detected?

Sally: I believe if defective data is detected prior to an agreement on price, it must be pointed out, whether or not the correction of the data would increase or decrease the price. I recall that if the data is determined after the contract award that the data was defective at the date of final cost agreement, the government is entitled to a downward price adjustment, including profit, for significant overpricing caused by the defective data.

Luke: Very good! Next, I want to talk about the federal acquisition regulations for this concept. Federal acquisition regulations prescribe four clauses relating to cost or pricing data. The first is price reductions for defective costs or pricing data and it is used through contracting by negotiation, and it is contemplated that cost or pricing data will be required. The second is price reduction for defective cost or pricing data modifications and it is used when it is contemplated that cost or pricing data will be required for modifications and the first clause is not in the basic contract. Sally what do you think the last two clauses are?

Sally: Well, based on some classes I took at Strayer I would say that the third clause deals with the subcontractor costs or pricing data and is used in conjunction with the first clause which applies to negotiation. I also think that the final clause will deal with the subcontractor cost or pricing data modifications and will be used in conjunction with the second clause. Am I correct on this?

Luke: You are very correct. You did a great job going over these last two clauses.

Sally: Luke thank you again for your time this week. I really appreciate everything that you shared with me.

Luke: It was my pleasure! Now I would like for you to go through a review activity I have prepared to help you better grasp some of the concepts we covered.

Luke: Obtaining cost information involves three main processes. The first is whether cost or pricing data is required and the format in which it is to be submitted. The second is whether information other than cost or pricing data is required if cost or pricing data is not necessary. The third item involves the necessary pre-award or post-award access to examine the offer’s records.

Luke: Cost analysis is the review and evaluation of the separate cost elements and profit in an offer’s or contract’s proposal. The application of judgment then determines how well the propose costs represent what the cost of the contract should be, assuming reasonable economy and efficiency.

Luke: Cost or pricing data deals with estimates that are a combination of presently known information and judgments used to project expected costs from the presently known information. Keep in mind that the proposal should provide enough supplemental information about the cost figures to make it possible for the government to analyze the pricing proposal in detail.

Luke: Defective data is determined after the contract award determines that the data was defective at the date of final cost agreement. The government however is entitled to a downward price adjustment, including profit, for significant overpricing caused by the defective data.

Luke: You did a really good job on the review materials I put together for you. I hope they helped fill in any gaps surrounding the concepts we discussed during our time together.

I would now like to summarize everything we discussed while working together. Feel free to add on to anything I say as we go through.

Luke: First, we discussed the fact that the most recent changes in federal acquisition regulations significantly restrict the government’s ability to routinely request and obtain cost or pricing data. We saw that contracting officers should not obtain more information than is necessary for determining the reasonableness of the price or evaluating cost realism.

 

Sally: I’ll take this one Luke! I then remember that we identified exceptions to cost or pricing data requirements. I learned that federal acquisition regulations prohibit contracting officers from obtaining cost or pricing data when the agreed upon price meets one of the conditions specified by the FAR. I recall that the conditions we discussed included: If the price is based on adequate price competition, or if it is set by laws or regulations.

 

Luke: Good job Sally! I then went over cost analysis and cost realism. I told you to make note that cost analysis is the review and evaluation of the separate cost elements and profit in an offer’s or contract’s proposal, and the application of judgment to determine how well the propose costs represent what the cost of the contract should be, assuming reasonable economy and efficiency. We then went over cost realism and learned that it is the process of independently reviewing and evaluating specific elements of each offer’s proposed cost estimate to determine whether the estimated proposed cost elements are realistic for the work to be performed.

 

Sally: I believe after that we mentioned that the request to submit cost information should be made at any time prior to the close of negotiations, preferably in the original solicitation. I also remember that this request should also specify certain things like the format in which it is to be submitted, and whether information other than the cost or pricing data is required.

Jake: I’m glad to see you were taking notes! We later covered price proposals and learned that they are estimates of future costs and profits, and we saw that it is difficult to estimate these prices exactly. I also recommended that you kept in mind that the proposal should provide enough supplemental information about the cost figures to make it possible for the government to analyze the pricing proposal in detail.

 

Sally: I also recall from the lesson that discussed defective pricing. I learned that this exists when any price for any purchase action covered by a certificate of current cost or pricing data is increased by any significant amount because the data was not accurate, complete, or current. I also took some notes explaining that if such defective data is detected prior to agreement on price, it must be pointed out to determine whether or not the correction of the data would increase or decrease the price.

 

Luke: Awesome job Sally! Finally, we concluded our time together by identifying the four clauses related to cost or pricing data and learned when these clauses are used.

Sally: Thank you for the review Luke! I learned so much this week and can’t wait to put all of this new found knowledge to work on this project Dominic gave me. It has been a pleasure working with you!

Jake: It was a pleasure working with you too! I look forward to working with you again in the future but until then don’t forget to complete your weekly discussion questions based on the key concepts we covered this week. Have a good rest of the day and I will see you soon!

© 2020 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of Strayer University.

BUS315

Week 6 SolarCal Case Analysis

Analysis of Direct Labor Costs

Participants:

Sally- Intern

Dominic- CEO of SolarCal

Luke- Head of Productions

Jake- Head of Accounting/Finance

Melissa- Head of Government Contracting

Dominic: Welcome back again Sally! I hope you had a very productive week and learned a lot while working with Luke last week! He is very knowledgeable in his field and is truly an asset to our team.

Sally: Thanks Dominic! Luke and I worked really well together, and we went over quite a bit of information pertaining to cost and pricing data in his department. I took a lot of notes and several of the key points we went over.

Dominic: I’m glad you learned a lot from Luke and have some notes to go back to regarding the key concepts you learned. I hope you are ready to complete another portion of the project I have assigned you. You will again be working with Luke this week; I need him to cover a few more concepts involving direct labor costs. Be sure to take some more notes and pay attention to what Luke goes over with you. The concepts discussed this week will really assist you with this big project we are working on. As far as the project goes, I can’t really go into details at this point since we are really trying to keep this project under wraps for now. However, I can assure you that this project will be large and very time consuming.

Sally: I am excited to be working with Luke again. I have my pen and paper ready to take notes while I go over this week’s materials with Luke. I am very interested to see what this big project is all about and I will do my best to be prepared for when the project is ready to go under way.

Dominic: I’m glad to hear that and I love your enthusiasm. We are lucky to have you assist us with this project when it begins; you have accomplished so much during your stay with us! Now let’s now make our way back down to Luke’s office.

Dominic: Good morning Luke! I have brought Sally back to you for the week. I will need you to go over some more concepts related to direct labor. As I told you and the rest of the staff, we are looking to undertake a huge project and I need everyone to be on the same page.

Luke: I completely understand Dominic. I will make sure to get Sally up to speed with some other key concepts she may need to know.

Sally, I hope you’re ready for another great week together. I have so much for us to do!

Sally: It is my pleasure to be working with you again Luke! I am ready to get started and am truly excited to learn even more from you!

Dominic, I think I am in good hands and I will report back to you next week. Thanks again for helping me prepare for this upcoming project; I feel that at the end of this internship I can be a real asset to this project you have been discussing.

Dominic: Thanks again Luke and thank you Sally for being so flexible. Trust me, all of your hard work will pay off at the end. Good luck and I look forward to talking with you next week.

See you later everyone!

Luke: Well, here we are again Sally! This week we will be talking about direct labor costs and its effect on productions. Before we get started, can you tell me a little bit about what you know about labor costs and how the government would use this information?

Sally: Here is what I know thus far.

I recall that the government places many contracts for physical products which they refer to as supplies. I also know that federal acquisition regulations define these supplies as all the properties that are expecting land or have interest in land.

Luke: Great job! Let me add a couple more things for you though. Take notice that the modern definition of supplies refers to the entire range of physical products that the government buys, including raw materials, parts, and components. We also see that fundamentally, all products and equipment sold contain labor inputs of some kind and the government often does a price analysis by itself when buying these products.

Sally:

I do have a question though; I keep hearing the term direct and indirect labor costs at meetings in the CEO’s Boardroom, what is the difference?

Luke: That is a fine question to ask. Direct labor costs refer to the cost of labor specifically identified with a particular contract that a company is doing. We see that it is general practice to refer to the following three types of labor costs as direct labor:

Labor directly associated with the work being produced;

Labor readily identifiable with a particular objective such as a contract; and

Labor important enough to warrant identifying and measuring so we can keep up with its cost.

Sally: I think I understand the components of direct labor now! What about indirect labor?

Luke: When it comes to indirect labor, this is different from direct labor because it is not specifically identifiable to a given job or contract. For example, a supervisor may spend more time on one contract than another, and hence it would be difficult to apportion their time and cost to individual contracts.

Sally: Oh, I see the difference now between the two. Thanks for clearing that up for me.

Luke: Not a problem at all. There is one more thing I would like to share with you.

Make a note that there are some types of labor that can be either direct labor or indirect labor. The government is normally quite happy to let companies charge up individual workers any way they please, with a couple of restrictions. The Cost Accounting Standards do not tell companies which type of employees should be direct labor and which should be indirect, except in very broad terms. The standards, if they apply to the company at all, require the company to tell the government how they categorize people as direct or indirect labor and require that the company let the government know if they want to make a change.

Sally: That is very interesting, and I am glad you shared this with me. I have jotted a few notes down about this. It seemed pretty important to keep in mind.

Luke: Now let’s talk about how to estimate labor costs and the various processes that are involved. Before we get started, could I get a temperature of your background knowledge on the subject of labor costs?

Sally: I think I have some valuable insight to offer on this subject. I know that companies routinely use systematic procedures to estimate labor costs. I also recall that prior to submitting a bid or proposal; competent contractors examine thoroughly the engineering drawings, schedules, specifications, and standards to determine exactly what is to be done. I don’t really remember what occurs after; could you fill in this blank for me so I can get back on track?

Luke: Sure thing! You were doing so well too. Once the standards are determined, the contractors will estimate the direct labor hours that they believe will be needed to do the work. In many instances, they may also perform a site visit to assess the impact of environment and terrain on their estimate. After determining the estimated labor hours, direct labor cost is calculated by multiplying each type of labor hour by an appropriate hourly rate. One of the most widely used methods to estimate labor cost is the work breakdown structure.

What do you recall about a work breakdown structure?

Sally: I recall that a work breakdown structure is often used to estimate direct labor hours for a proposed project. The resulting estimated hours can then be multiplied by anticipated labor rates to determine the estimated labor costs.

Luke: Good work, that is correct! To add to this, a work breakdown structure also breaks a project down into its major parts, and then each major part is broken down into its subparts, continuing until the entire project is broken down into the lowest level of detail. Finally, the entire project will then be divided into small enough segments to work with.

Sally: Aren’t phase diagrams another method used by contractors to estimate costs?

Luke: Yes they are! They are similar to the work breakdown structure approach, except that the details of the work are spread out over a time base.

Sally: So why do you think it is so important to analyze direct labor costs? We seem to spend a lot of time collecting this type of data and information.

Luke: Well in fixed-price contracts, the detailed analysis of direct labor cost is extremely important when these costs are a significant part of the total contract costs. There are two basic reasons for this which includes: finally agreed upon direct labor costs are one hundred percent allocable to the contract; and indirect costs are likely to be overstated if direct labor cost is too high.

Keep in mind that a highly precise analysis of direct labor costs is generally not feasible in cost-reimbursement contracting. Why do you think this is?

Sally: Would it be because the government is protected in cost reimbursement contracts because it will pay the actual cost of performance, not a pre-estimated amount?

Luke: This is correct Sally! Nevertheless, the government has a responsibility to examine proposed direct labor costs and to consider the following items:

Differences in labor rates;

Level of the proposer’s understanding of the work; and

Fees.

Make a note that federal acquisition regulations give the directions for preparing a contract pricing proposal. For issues concerning the submission of direct labor costs, the instructions are simple and straightforward by providing a time-phased breakdown of labor hours, rates and cost by appropriate categories, and the furnishing of bases for estimates.

Sally: That makes a lot of sense now, I have written down a couple of things to help me remember these main points.

Luke, I would now like to know how you project the wage rates in the future.

Luke: I would be happy to share this with you! There are several ways to determine average wage rates. A few firms use a plant-wide rate, which is a single hourly wage rate that applies to all manufacturing labor. Many firms also use departmental rates, which are average rates established for each separate manufacturing department. Which rate do you think is used more commonly?

Sally: I would think that the departmental rates would be used more commonly. I remember learning that these rates work well when the skill mix for your work is very similar to the skill mix used to determine the departmental rate. However, I recall that these rates will cause an overstatement of direct labor cost when your work gets a lower skill mix.

Luke: That is correct, great job Sally! Keep in mind that most firms with an engineering department use a labor category rate for that department. In manufacturing, rates by labor category are most commonly used to predict engineering direct labor costs because differences in wage rates are significant among draftsmen, project engineers, and project managers. All these labor categories, including project managers, are almost always direct costs. Sally, what can you tell me about individual labor rates?

Sally: Aren’t individual labor rates used in unusual circumstances? I believe these rates would be used when named individuals, generally highly paid, are used for contract efforts. I also know that when individual rates are used, the offer will name the individuals to be assigned, estimate the hours required, and state their wage rates.

Luke: Right you are, you hit the nail on the head with your response. As we move on, make note that none of the wage rate methods we discussed are precise. It is not our job, as cost analysts, to tell buyers what system to use. It is instead our job to assess the results of the system actually being used.

Sally: I think I got it and have written down this information in my notebook.

Luke: Great! Let’s move on.

Sally: In a meeting recently I heard Dominic talking about the historical cost method, what does this mean?

Luke: The historical cost method is used for estimating the direct labor hours based on using actual experiences when making the same or similar products. We see that most manufacturers maintain very precise historical data on the actual times used for each step when making their products.

Sally: Couldn’t these manufacturers estimate the hours needed to build products for a new proposal if they had previous data on how long it took to make the products before.

Luke: Yes, Sally, and this is indeed what most manufacturers do. To estimate these hours, manufacturers will simply adjust the previous times to the quantity needed for the current offer.

Sally: Wouldn’t this be where negotiated contracts come into play?

Luke: You read my mind! I was just going to cover this concept. Keep in mind that negotiated contracts are generally awarded to companies with prior experience in manufacturing the same or similar items because these companies will usually have complete historical data on labor costs for prior contracts. Do you think firms need to have experience making a specific product?

Sally: I would think that a firm doesn’t need to have experience in making an identical product. I feel that since many of the manufacturing steps for the other product will be the same or similar to those for the new product, experience may not be needed.

Luke: Nice response, you definitely have a good understanding on that contract type. One thing I would like for you to take note of is the fact that the historical cost method is commonly used to estimate labor costs, even with its disadvantages.

Sally: Thank you for sharing that with me. What is next for us to go over?

Luke: Not a problem at all. I would now like to cover with you the labor standards methods that we use at SolarCal. This is very important; Dominic may ask you some questions about this method.

Sally: Am all ears Luke!

Luke: To start off, the labor standards method is an objective method for estimating labor hours that does not rely on prior experiences. Make note that these labor standards are expressed as output standards or time standards. When using an output standard it states the production rate for a given unit for a specific manufacturing task. On the other hand, a time standard is the time it should take to complete one task. Keep in mind that the standard time for an operation consists of the basic time required to complete the task plus the leveled time, personal delay and fatigue allowed, and special allowance. Any questions so far?

Sally: Not right now, everything makes sense.

Luke: I am now going to talk about the concept of “learning curve.” Now I know you may have heard this phrase while in school but its meaning takes on a different meaning in the world of productions.

Sally: Yes, I have heard this phrase before but I am interested to see what it means when it involves the production line.

Luke: Here at SolarCal, we are continually performing repetitive tasks, but more importantly we are almost always looking for and finding faster ways to complete these tasks. The learning curve is simply a graph that shows how this improvement can be measured and utilized. This graph also provides a way to predict labor hours and costs based on our beginning hours and costs.

Sally: Couldn’t we use this curve to predict the labor hours and costs needed for specific units if we have the standard hours for a first or intermediate unit?

Luke: You are right and this is exactly what we do here. These learning curves are very beneficial to us!

Furthermore, early developers of the theory called it the learning curve because they believed that learning by using workers saved the company a lot of time. When we use these learning curves, we use percentages to express improvement factors. Keep in mind that you shouldn’t be misled about learning curves. They are not that simple. Proper applications are very complex and the concept is only useful when mixed with good judgment.

Sally: I can see learning curves are very important! Can you talk a little bit about the direct and indirect labor costs at SolarCal and the industry as a whole?

Luke: Sure thing! Like other manufacturers, we use direct and indirect labor to convert raw materials and purchased parts and components into finished goods. In order to accomplish this task we need to complete several physical operations including cutting, grinding, and drilling. When we use factory direct labor we are talking about the people who are actually making parts from raw materials, installing parts into components, or assembling finished items.

Sally: Wouldn’t some of these costs be on the borderline of direct and indirect?

Luke: Great question! Let me explain this a little more. We see that different companies have different practices for classifying labor costs. For example, some companies classify all foremen as indirect labor and others classify them as direct labor.

Sally: That makes a lot of sense!

Luke: There are a wide variety of processes and direct labor skills that are present in a factory at any given time. Make note that each process has the direct labor people needed to get the work done. However, the mere fact that one company has a higher set of wage rates than another does not necessarily make the higher wage rates unreasonable.

Sally: Luke, what kind of factors can affect the hourly rate? I only asked because I see several engineers on the production floor and I was unsure of how their rates differed.

Luke: Thanks for bringing up that topic. As you can see there are numerous factors that can affect the hourly rate. Just like you said before, there are quite a few engineers present in my department. In order to validate each engineer’s wage rate we are checked by audits or by completing a comparison based on the Department of Labor’s prevailing rates for each area.

Sally: I think I have enough written down now to give an accurate report to Dominic next time I see him. Thank you again for sharing with me all this great information.

Luke: Not a problem at all! I was glad I was of assistance throughout the week.

Before we get ready for our weekly review, I would like for you to go through a review activity I have prepared to help you better grasp some of the concepts we covered this week.

Luke: Direct labor cost is the cost of labor specifically identified with a particular contract that a company is doing. It is a general practice to refer to the following three types of labor costs as direct labor:

Labor directly associated with the work being produced;
Labor readily identifiable with a particular objective such as a contract; and
Labor important enough to warrant identifying and measuring so we can keep up with its cost.

Luke: When projecting wage rates there are several ways to determine average wage rates. We see that many firms may elect to use a plant-wide rate, which is a single hourly wage rate that applies to all manufacturing labor.

Luke: The Historical Cost Method is used for estimating direct labor hours and is based on using actual experience when making the same or similar products. Most manufacturers maintain very precise historical data on the actual times used for each step when making their products and this can assist with long term production goals.

Luke: Labor Standards are expressed as output standards or time standards. An output standard states a production rate for a given unit for a specific manufacturing operation, while a time standard is the time it should take to complete one operation.

Luke: Great work on the review materials. You did great and I think you really have a solid foundation for the concepts we discussed this week.

I would now like to summarize what we went over this week to fill in any gaps you may have had. Feel free to add on to anything I say as we go through.

Sally: Sounds great Luke! If you don’t mind, I would like to start off the review. We first, we defined direct labor cost, and I learned that the cost of labor is specifically identified with the particular contract a company is working on. We then noted that indirect labor is different from direct labor because it is not specifically identifiable to a given job or contract.

 

Luke: Excellent! I then showed you how many companies estimate direct labor costs. We saw that one of the most widely used methods to estimate labor cost is the work breakdown structure. We went on to define work breakdown structures and saw that they are often used to estimate direct labor hours for a proposed project.

Sally: Let’s not forget about phase diagrams. I remember taking notes on this concept and writing down that these diagrams are another method used by contractors to estimate costs. I recall that they are similar to the work breakdown structure approach, except that the details of the work are spread out over a time base.

 

Luke: I’m glad you were paying attention Sally. As we moved on, we discussed how a detailed analysis of direct labor costs in fixed-price contracts are very crucial, because finally agreed upon direct labor costs are one hundred percent allocable to the contract.

Sally: You also told me to take note of indirect costs likely being overstated when the direct labor cost is too high. I also recall that the highly precise analysis of direct labor costs is generally not feasible in cost-reimbursement contracting.

 

Luke: Thank you for including that in our review. Later we identified the general approaches to analyzing direct labor costs revolves around examining each element of the proposed cost.

Sally: We then talked about the historical cost method and saw that it is used for estimating direct labor hours using actual experiences when making the same or similar products. You also made note of negotiated contracts and how they are generally awarded to companies with prior experience in manufacturing the same or similar items.

 

Luke: You’re doing great thus far. I hope this is helping. Next, we took a closer look at the labor standards method. We learned that this is an objective method for estimating labor hours and saw that it doesn’t rely on prior experiences.

 

Sally: This is definitely helpful, it’s nice to look back at my notes and really reflect on the concepts we have covered. This now brings me to the next topic we addressed which was learning curves. I learned that these learning curves are graphs that show how performing an operation repeatedly helps complete it faster as well as showing how improvement can be measured and used.

Luke: I’m really glad to hear that! To close out the week we learned that manufacturers use direct and indirect labor to convert raw materials and purchased parts and components into finished goods.

Sally: Thank you again for the review Luke! I feel that I learned a lot this week and I think we really work well together. I’m excited to share my newfound knowledge with Dominic when I see him next week.

Jake: You are truly an asset to us here at SolarCal and I look forward to working with you again. I know Dominic will be very impressed when you report back to him next week.

Until we meet again, don’t forget to complete your weekly discussion questions based on the key concepts we covered this week.

Have a good rest of the day and I will see you soon!

© 2020 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of Strayer University.

Running head:

Solar Technology Company

1

Solar Technology Company 5

Solar Technology Company

Institution:

Student’s name:

Date:

Superstar Solar, Inc.

The company was formed to fulfil the needs of a market gap where there has been limited number of solar product and services suppliers who offer their products at an affordable prices. This was attained through ensuring the company offers a wide variety of products at the most convenient terms. Also, the company was formed with an aim of bringing in high quality products and most updated products based on the needs of the target market. This is as a result of presence of diverse customer and market needs that needs attention through providing customized products. The needs of the market were identified through a continuous market survey over a long period of time until a clear market status was determined (Wang & Li, 2018).

The mission of the company is to improve the lives of the members of the society through providing reliable and affordable solar solutions. With the increased need of protecting the environment and ensuring there is optimal use of resources, the company serves the ultimate purpose of building a better and more reliable environment.

The vision of the company is to become the market leader in offering solar solutions. This is attained through ensuring the global community understands the unique product and service offer by the company. The company aims at setting the pace in terms of quality of products and services as well as competitive strategies such that other market players can follow the path in making the world a better global society to live in.

The company solar power products include solar panel systems where the company sells the systems to both private individuals and institutions based on the level of need of the target customers or clients. Also, the company offers green technology solutions through developing effective systems that can be relied upon by individuals and

There are three major personnel in the company. One of the personnel od the production manager who oversees the production processes and ensuring the output meets the quality standards of the products. Another personnel is the public relations manager whose role is ensuring the brand maintains a positive and resourceful relation with the target market (Lin et al, 2020).

The target client base is the entire world where the company aims at expanding the market to the entire world. This is to be attained through partnership and direct export based on the needs of the target market.

SolarCal

The need to create a unique provider of solar solutions was the main driving force to establishing the SolarCar Company. There has been a lack of affordable solar products and services in the market, so the company was established to fill that void. To achieve this, the company ensured that it had a wide range of products available at the most reasonable prices possible. In addition, the company was established with the goal of supplying the target market with products of the highest quality and the most up-to-date technology. As a result of the large number of unique customer and market demands, this is a necessity. Over a long period of time, the needs of the market were discovered by conducting a continuous market survey.

By providing reliable and cost-effective solar solutions, the company aims to improve people’s lives. The company’s ultimate goal is to create a better and more reliable environment, which necessitates environmental protection and resource efficiency.

The company’s goal is to become the leading provider of solar solutions in the market. In order to achieve this, the company must ensure that the global community is aware of the unique products and services it provides. The company aims to set the pace in terms of product and service quality and competitive strategy so that other market players can follow suit in making the world a better global society.

The company deals with the production and sale of solar systems. This entails both small-scale installation and large scale solar panels based on the preference of the customers.

SolarCal Compsny relies on expertise of key personnel such as the head of production. This position is currently held by Dominic. Dominic is responsible of ensuring the products offered by the company are reliable and in alignment with the company strategy. Another key personnel in the organization is the head of accounting, a position occupied by Jake whose role is ensuring there is accountability of the funds used in the organization. In addition to the key personnel is the head of government contracting. Lastly, there is the CEO who also plays a vital role in management and ensuring there is efficiency of operations in the organization.

The target market of the company is large institutions such as governments and public service institutions. These are organizations whose demand is huge and which requires much resources in solving the problems such as mass installation of solar systems.

Price analysis methods

One of the pricing analysis methods that can be used by the organization is comparison of the proposed prices in relation to the solicitation. This is an analysis done to determine the most reliable pricing strategy. The second method that can be used by SolarCal is comparison of prior prices paid which seek to establish the prices that have been used before by the organization in determining the most reliable price range to use. The third method that can be used is comparison based on prices paid for similar item where the major focus is on the price offered in relation to what has been offered for similar item in the past.

Superstar Solar, Inc. can use comparison of prior quotes in forecasting prices for the products. This can be attained through researching for past prices that have been charged by competitors for similar products. The second method that can be used by the organization in making forecast is comparison of prices offered in response to market prices. This entails an analysis between what the organization is willing to charge the products and services in relation to the prices prevailing at the market. The third pricing strategy that can be used by the organization is comparison of prices in relation to market forces where the organization anticipates the market forces such as level of demand and implementing an appropriate price that fits the market force (Lahmiri, 2018).

Reference

Lahmiri, S. (2018). Minute-ahead stock price forecasting based on singular spectrum analysis and support vector regression. Applied Mathematics and Computation, 320, 444-451.

Lin, L., Jiang, Y., Xiao, H., & Zhou, Z. (2020). Crude oil price forecasting based on a novel hybrid long memory GARCH-M and wavelet analysis model. Physica A: Statistical Mechanics and its Applications, 543, 123532.

Wang, J., & Li, X. (2018). A combined neural network model for commodity price forecasting with SSA. Soft Computing, 22(16), 5323-5333.