Navigation System's Price Analysis

Price analysis refers to the procedure of deciding if the selling price or asking price of a given service or commodity is reasonable and fair without the need to evaluate the specific expenses and calculations of profits the supplier used to arrive at a given price. The process compares price with the other known indicators to determine fairness and reasonableness. If the price competition in the market is not sufficient, there is need to conduct other forms of analysis ( Miles, 2015) . Some reasons that affect price competition are restrictive tolerances, lack of definitive specifications, and limits to production capacity. 

Some sort of price or costs analysis need to be conducted in relation with different procurement actions whether the company is the recipient or vendor. The degree and form of analysis depend on the particular purchase or subcontract ad the situation of pricing. It is important to determine the price reasonableness through the cost or price analysis even when the procurement is sourced by the contracting officer of the company ( Lederman & Porto, 2015) . In some cases, price analysis is sufficient but in most cases, elaborate conclusions are attained through cost analysis. 

Price analysis is important because it ensures money is used in an effective way and the required resources conserved. Prices that are unreasonable or excessive fail to accomplish the goal of fair and reasonable cost. In the performance of price analysis to determine if the price is fair, the buyer uses a wide selection of techniques. These include the use of market prices, historical prices, price competition, established price list, and comparison between similar goods. The price competition compares the offers given and chooses the lowest price offered ( Nas, 2016) . A price that is too low should be analyzed to ensure the vendor understand the products they are offering. 

Classification of costs is the separation of expenses into various groups or classes. In economics these categories are sunk, variable, fixed, production, or opportunity costs. Accounting costs are divided into indirect and direct costs. For the price, analysis for the v navigation system compares the prices and costs of the products with similar products in the same market. The price forecast depends on the comparison of price competition, since the firm offers similar commodities with the rivals ( Miles, 2015) . It is important to determine critically the pricing of the navigation system after identifying the main competitor to ensure that the price set not only beat the competition but also is also affordable to increase client demand. 

The primary costs to consider for the price strategy is the manufacturing expenses. In this case, the manufacturing cost is high compared the direct materials needed for the production of manned or unmanned system, space systems, aircrafts, and the technology used in the manufacturing might be costly. The job requires skilled experts that are directly needed in the monitoring and production of the system. Another important factor to consider is the production overhead that are accompanied with high-end production firms. The cost element to consider is the non-manufacturing expense, known as the administrative expenses that is most important expense and is indirectly related to the production. Another important factor to consider is the production costs that are considered during the pricing of the commodities ( Lederman & Porto, 2015) . In essence, an appropriate valuation of the inventory should be considered to determine the needed inventory for the manufacturing of given unit, and in this case, it is the unit costing that is crucial to determine the expenses during the product production. 

Table 1 : Direct Costs 

The costs mentioned in Table 1 represent the basic expenses related to the operating and manufacturing cost of the navigation system. The company will also incur other forms of costs such as wages and salaries of hiring and new experts. The employees should be highly skilled and competent to create the best work outcomes. The work nature needs the company to hire the system engineers, software engineers, software architect, and other technological experts to create the system ( Lederman & Porto, 2015). The approximated salaries of the professionals are given in table 2. 

Table 2 : Average Salaries 

In price analysis, fixed and variable costs need to be considered. All companies have two types of costs such as the variable costs and fixed costs. Fixed costs are known as overhead costs and they hardly change during the production process. This means that the cost is independent of the level of output. Although fixed costs do not change with the level of output, the variable costs are directly associated with the manufacturing of the units. The variable cost of the company fluctuates with the total production unit. When the volume of production reduces, the variable cost decrease and when the volume raises, the amount of materials increases hence the increase in variable costs. Some of the fixed costs are management salaries, insurance, rent for the production facility, and taxes. The company desires to be the only supplier of navigation systems to the government and this would increase production and likely make the firm move to a different location. Such changes would increase the fixed costs in the future. 

References 

Lederman, D., & Porto, G. (2015). The price is not always right: on the impacts of commodity prices on households (and countries).  The World Bank Research Observer ,  31 (1), 168-197. 

Miles, L. D. (2015).  Techniques of value analysis and engineering . Miles Value Foundation. 

Nas, T. F. (2016).  Cost-benefit analysis: Theory and application . Lexington Books.