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What is a cost system that could be used by a computer company?

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ch4limi0 | (Level 1) eNoter

Posted August 15, 2013 at 6:28 AM via web

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What is a cost system that could be used by a computer company?

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kipling2448 | (Level 2) Educator Emeritus

Posted August 15, 2013 at 5:12 PM (Answer #1)

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When considering a pricing strategy for any business, there are certain variables that are always factored into the equation.  Labor and material costs associated with the manufacturing process, marketing costs, costs associated with maintaining the physical plant and all means of delivery or distribution, level of competition, and more.  All of these are taken into account when determining the prices of goods or services.  In the case of the computer industry, the process is complicated by the constant evolutionary changes to the product.  In no other area has product obsolescence occurred so quickly and continuously as with the evolution of computing technology.  Combined with the intense level of competition in the computer industry, the issue of rapid block obsolescence makes pricing a particularly difficult component of that business.

When determining a pricing strategy for a computer store, then, all of these variables must be considered, along with the ease by which computers can be purchased over the internet and delivered directly to the consumer’s home or office.  Because much of the manufacturing process for computers occurs in countries with relatively low wage scales compared to modern industrialized countries like the United States or Germany, and because the market for computers has grown exponentially, prices can be kept lower than the quality and capabilities of the product would otherwise indicate, despite the intense level of competition.  In addition, there are so many, innumerable, in fact, variations of each computer company’s models that cost comparisons are almost impossible, thereby allowing stores to exercise greater discretion in pricing than with many other types of products.

Computer prices have dropped a great deal since the introduction of personal computers in the early 1980s.  As long as labor and material costs remain low, and as long as the level of competition remains high, computer prices should remain low for the foreseeable future.  The size of the market and the “requirement” to upgrade frequently means that it will remains a profitable enterprise.

The two main costing systems are activity-based costing and product costing systems. California State University, Sacramento compares them for you. Job-order costing system is described and compared by New Charter University.

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