Costs essay
Currently industry leaders in computer manufacturing such as Dell, HP, Lenovo etc. optimize their costs and use approaches like just-in-time inventory management in order to cut costs and provide customizations of their products to the clients. Companies engaged in laptop manufacturing are the third unit in the value-added chain in PC industry, after the companies working on raw materials such as Dow Chemical, Kyocera etc., and largest manufacturers of hardware such as Intel, AMD, nVidia, etc. producing pieces of hardware (Hill & Gareth, 2009). Costs of direct materials emerge when the companies choose to work on raw materials or produce parts of hardware themselves. Several companies were trying to combine the processes of manufacturing hardware and PC assembly, but thus proved to be too costly, and currently PC manufacturers associate their direct costs (product, value-added) with hardware parts bought from outside suppliers (Hill & Gareth, 2009). Since laptops require a certain part of customization and special adjustment of hardware such as motherboards, video chips and other integrated devices, the companies might have some indirect costs related to ordering and customization of hardware products. These costs are value-added, and can be classified as product costs.
For laptop production, most of leading companies in this industry (e.g. Dell, HP) have own logistics centers in the countries where they have selected to locate outsourcing facilities. The costs of deploying and installing these logistics centers are indirect, non-value added, period costs. According to just-in-time ordering, the supply chain delivers laptop parts upon request to the chosen region (to logistics centre). Costs associated with transportation, loading and related communication costs are also related to laptops; these are non-value added variable costs, which can be classified as indirect product costs (since these costs are not related to a particular laptop, and these operations are done with packages of hardware) (Needles & Powers & Crosson, 2007). Furthermore, costs associated with assembly are direct variable costs, which are naturally value-added, and this type of costs is naturally product cost. Direct labor costs related to laptop assembly are also part of these costs.
After the laptops are assembled, they might be delivered directly to the company’s unit where the customers ordered the item or to retail centers. In the first case, transportation and shipment costs are involved, which are non-value added variable costs (Needles & Powers & Crosson, 2007). In addition, costs associated with maintenance of the store, managerial salaries and other related costs emerge, which are non-value added period costs. In the second case, storage costs and depreciation costs should also be taken into account, which represent non-value added variable costs (Hill & Gareth, 2009).
With regard to online sales, instead of storage and maintenance costs and indirect labor costs involved into this process, other issues come to action. Indirect labor costs are significantly lower compared to in-person sales, and are associated with development and maintenance of a website or other online service. Other indirect period costs include online advertising expenses, web hosting expenses and labor costs related to the online order processing, which can be classified as indirect product costs.
Apart from the process of ordering laptops, which starts the cycle involving the delivery of hardware parts, assembly and transportation of the laptop to the place, there are indirect costs (most often also being period costs) caused by marketing and advertising efforts, service, maintenance costs, customer support, etc. In addition to this, all PC manufacturers have to perform research activities in order to deliver new products and to win attention of the customers. Costs associated with R&D departments are clearly overhead costs, which do not result in direct increases of the company’s revenue, but are essential for gaining new competitive advantages and staying on top of the market. Costs allocated to R&D departments are the example of fixed costs, as well as expenses associated with marketing and product placement efforts.
