SMG SI 422 Lecture 9: Class 9 - Analyzing Relative Costs

• School: Boston University
• Department: Strategy & Innovation
• Course: SMG SI 422
• Professor: John Kirks

Document Summary

Each cost item consists of two elements: a factor (or input) cost and some measure of productivity. Factor costs is the input cost per unit of input. Productivity reflects the number of units of output that each unit of input yields. No, we should conduct research to project estimates. For example, for wage bills, we can use our i(cid:374)te(cid:396)(cid:374)al data to (cid:271)uild a (cid:373)odel (cid:396)elati(cid:374)g to it, (cid:272)olle(cid:272)t the (cid:448)a(cid:396)ia(cid:271)les fo(cid:396) (cid:396)i(cid:448)al"s fa(cid:272)to(cid:396)ies, a(cid:374)d use the (cid:373)odel to esti(cid:373)ate the (cid:396)i(cid:448)al"s (cid:449)age (cid:271)ills. We (cid:272)a(cid:374) (cid:272)o(cid:374)fi(cid:396)(cid:373) (cid:272)ost esti(cid:373)ates (cid:271)(cid:455) app(cid:396)oa(cid:272)hi(cid:374)g the task f(cid:396)o(cid:373) (cid:373)ultiple angles. When there are gaps, we have to keep moving and make rough assumptions which ends in a rough-and-dirty analysis. Then we go back and see which ones need more investment and refinement. Yes, because then you can see how much your customers are willing to pay for your product.