Assignment 2: Administrative Costs

Cost drivers

Student’s name

University affiliation

Introduction

Water consumption is something that is very essential. Each person is advised to take a certain amount of water per day. To encourage the consumption of water, I will provide consumers with alkaline water. Alkaline water is beneficial exceedingly compared to tap water and bottled water. Some of the benefits of bottled water are its anti-aging properties, hydration, weight loss and its ability to boost the immune system. Alkaline water has a pH above seven which means it has a lower concentration of hydrogen ions. Therefore alkaline water is different from tap water in the sense that it’s less acidic. (Kozisek, 2005) On top of the above-mentioned benefits it also helps neutralize acid especially in the bloodstream which contributes to increased oxygen levels as well as its capability to improve energy and metabolism.

Therefore in order to expand the market for alkaline water consumption, my company will work in partnership with the producer of alkaline water. In this case, the objective of the business is to distribute the water in the community. Alkaline water, the enterprise will distribute the water in different sizes like 300ml bottles, 500ml bottles, 1 liter, 5 litres, 10 litres and 20 liters in that order. The aim of the business is to deliver non-alcoholic beverages to homes as well as offices in the community.

It is expected that the company will be profitable within the first financial year. As a result, the product list for the enterprise will total up to 6 products. Further, the sales of the products are expected to constantly change along the year. However, the total sales earned are expected to rise over the 12 months. Most importantly the company expects to breakeven in the first year and be profitable.

Product	1	2	3	4	5	6
Unit price $	10.00	5.00	8.00	2.00	7.00	4.00
Sales (units)
January	250	500	300	700	350	600
February	275	550	330	770	385	660
March	303	605	363	847	424	726
June	404	805	483	1127	564	966
July	443	886	531	1240	620	1063
August	487	974	585	1364	682	1169
September	536	1072	643	1501	750	1286
October	589	1179	707	1651	825	1415
November	648	1297	778	1816	908	1556
December	713	1427	856	1997	99	1712
Total units sold	5,346	10,692	6,414	14,969	7,484	12,831
Sales ($)	53,460	53,322.71	51,322.28	29,938.00	52,391.50	51,322.28

My company recognizes the importance of tracking costs as part of the budgeting process. This process is essential because not only does it affect a company’s cash but can also have a significant impact on federal tax payments. (Govindarajan, 1988). Therefore, my company has categorically separated direct cost. Considering the fact that my company plays a distribution role, the company will be involved in direct cost which involves equipment, cost of paying employees as well as consulting services to facilitate logistics of distribution.

Table of direct cost

	Equipments ($)	Consultant services ($ )	Cost of paying employees ($)
January	45.00	50.00	200.00
February	-	-	195.00
March	67.00	-	210.00
April	-	-	225.00
May	-	76.00	225.00
June	90.00	-	231.00
July	34.00	-	235.00
August	-	-	236.00
September	25.00	-	243.00
October	13.00	56.00	235.00
November December Total direct cost($)	- - 274.00	- 40.00 222.00	342.00 400.00 2,752.00

The total direct cost of my company is the sum of the above three components with a total of $ 3,248 which allows us to calculate gross profit by deducting the later from total sales of every product.

References

Kozisek, F. (2005). Health risks from drinking demineralised water. Nutrients in Drinking Water, 148-163.

Govindarajan, V. (1988). A contingency approach to strategy implementation at the business-unit level: integrating administrative mechanisms with strategy. Academy of management Journal, 31(4), 828-853.

Wilson, L., Brown, J. S., Shin, G. P., Luc, K. O., & Subak, L. L. (2001). Annual direct cost of urinary incontinence. Obstetrics & Gynecology, 98(3), 398-406.