4 Responses 02/27
Chandini Work:
Costs are very important in business decision-making. Cost of production provides the floor to pricing. It helps managers to take correct decisions, such as what price to quote, whether to place a particular order for inputs or not whether to abandon or add a product to the existing product line and so on. Ordinarily, costs refer to the money expenses incurred by a firm in the production process. But in economics, the cost is used in a broader sense. Here, costs include the imputed value of the entrepreneur’s own resources and services, as well as the salary of the owner-manager (Frennea, Han, & Mittal, 2019).
Money costs are the total money expenses incurred by a firm in producing a commodity. They include wages and salaries of labour; the cost of raw materials; expenditures on machines and equipment; depreciation and obsolescence charges on machines; buildings and other capital goods; rent on buildings; interest on capital borrowed; expenses on power, light, fuel, advertisement and transportation; insurance charges, and all types of taxes (Kdumont, 2018). There are the accounting costs that an entrepreneur takes into consideration in making payments to the various factors of production. These money costs are also known as explicit costs that an accountant records in the firm’s books. But there are other types of economic costs called implicit costs. Implicit costs are the imputed value of the entrepreneur’s own resources and services.
The total costs of production of a firm are divided into total variable costs and total fixed costs. The total variable costs are those expenses of production which change with the change in the firm’s output. Larger output requires larger inputs of labour, raw materials, power; fuel, etc. which increase the expenses of production. When the output is reduced, variable costs also diminish. They cease when production stops altogether. Marshall called these variable costs prime costs of production.
The variable costs of the company were increased due to an increase in the production of shoes. The production volume of the Nike company is very high, and it has been enhanced by the continuous production of many shoes that are on-demand (Wiener, 2021). Some of the variable costs that the company incurs include the costs of packaging and raw materials. Variable costs fluctuate when production and sales volume variance. It goes up when the production level rise. By computerization, the production level of Adidas rises, which increases variable cost. Fixed costs are investments that remain constant regardless of a company's production volume.
Reference:
Frennea, C., Han, K., & Mittal, V. (2019). Value Appropriation and Firm Shareholder Value: Role of Advertising and Receivables Management. Journal of Marketing Research (JMR), 56(2), 291–309. https://doi.org/10.1177/0022243718822506
Kdumont. (2018, November 13). Adding Value In Nike’s Production Line. The digital Initiative, The Harvard Business School.
Wiener, A. (2021, February 26). Inside Adidas' Robot-Powered, On-Demand Sneaker Factory. Retrieved February 25, 2021, from https://www.wired.com/story/inside-speedfactory-adidas-robot-powered-sneaker-factory/
Mounika Work:
Computerization is the act of performing, processing, storing, or controlling through the use of an electronic computer. To computerize something is to essentially make it electronic. To computerize is to make use of computers. Among many industries which are benefitted by computerization, show industry is one of them. They contribute towards speed, consistency, cost savings, reduction of workplace hazards etc.,
New Balance uses automation widely and one of the early adapters of the technology which helped them to be competitive. The automated embroidery selection programs they use on their custom product lines allow them to quickly change thread colors. Other technologies help them automate the steps of attaching the molded bottom portion of a shoe to the soft upper portion. Over the past three years, they have been implementing a digitized system for tracking defects on the production line. They are also using 3D foot scanning in select global retail locations to give the customers an enhanced fit experience. 3D printing, which is heavily used is especially valuable for making parts of customized footwear, such as plates—the molded part at the bottom of an athletic shoe that may have cleats or spikes—and cushioning materials, such as midsoles. With all these benefits from computerization, it has been implemented widely over the industry. Industries are inclined towards spending more towards setting up computerization because of its enormous benefits. Thus, New Balance has experienced increased costs which are attributed to computerization.
The variable costs increased because the production of shoes increased, and computerization made sure it will be high always. On the other hand, the need for labor, which is also a variable cost, decreased as the computers did the work. When coming to fixed costs, they reduced because how many ever number of shoes the company produced, the cost for the machinery stayed the same and indeed that reduces the per unit price as the number of units increase the number, the share of the fixed costs is shared among the number of pairs.
References
Lukic, V. (2021, January 08). How new balance is bringing industry 4.0 to shoemaking. Retrieved February 26, 2021, from https://www.bcg.com/en-us/publications/2017/operations-lean-manufacturing-new-balance-bringing-industry-4-shoemaking
Solereview. (2017, November 04). Robotics in footwear manufacturing is old news. here's why:. Retrieved February 26, 2021, from https://www.solereview.com/robotics-in-footwear-manufacturing-is-old-news/