Business Finance Homework Help

When materials are stored in inventory for a period of time before being  used in the production process, the accounting cost and economic cost  differ if the market price of these materials have changed from the  original purchase price. Accounting cost is equal to the actual  acquisition cost and economic cost is equal to the current replacement  cost. After reading the articles “U.S. Car Business in Major Shift” and  “Car Making in America”, which cost do you feel the U.S. Car industry  (GM, Ford, etc.) is most affected by – accounting or economic cost?

POST 1

While accounting costs are necessary for every company, calculating economic costs, small and big, although not necessary, maybe a helpful instrument in searching for informed business decisions. The costs of substituting an existing asset with one newer one at the current or present price are now the replacement expenses (Vahid et al., 2013).

The economic costs should be more critical in this scenario. That is because the cost elements in the existing substitution costs are economical. Economic costs will also aid in comparing two different actions in this scenario. It also examines the effects of each move on the automotive sector. Many individuals feared that the U.S. car industry’s doom was close during the Great Recession 2008-2010. Although the significant risk for the automotive industry was closely averted, the car industry aftermarket did extraordinarily well throughout the auto industry reversal, as contrasted to sales of new vehicles – which is still the case today (Anonymous, 2011). The U.S. automotive business has large brands, and they all have a significant base of customers. With seven essential vehicle manufacturers, firms cannot concentrate on a single opponent anymore.

Even new automobiles need regular servicing, but they need more maintenance and decompose more often as they become older. Both shops gain from service centers and spares. New automobile sales have risen with the return to economic stability. However, the aftermarket remains solid. The automotive industry is an extensive and broad range of manufacturing and service companies that sell vehicles, maintain them in order, maintain them and even destroy them when the time has come (Kell, 2011). Although business prospects at the car dealer level are frequently attractive, it is usually after the automobiles have been leased that things become fascinating for individuals who want to explore this industry.

Post 2

Accounting cost is equal to the actual acquisition cost, which is usually highly stable and predictable costs for financial reporting purposes. Economic cost, on the other hand, is mainly being considered for decision-making purposes. Economists use this measure to determine the present and future costs of resources associated with various alternative courses of action (McGuigan et al., 2014).

After reading the articles “U.S. Car Business in Major Shift” and “Car Making in America”, I believe the U.S. car industry is most affected by economic cost. The U.S. car industry has been facing fiercer competition in the past decade. To compete with low-cost foreign automotive brands, the U.S. big three G.M., Ford and Chrysler need to make adjustment to its high labor cost and its oversized structure. These adjustments are mainly concerned with economic cost rather than accounting cost because important business decisions and major structure changes need to be made here and economic cost is the measure that can help with the decision-making process. Keeping a high labor cost not only incurs explicit cost, but also implicit cost, where the explicit cost is the accounting cost that is actually incurred, and the implicit cost is the potential losses upon losing customers due to price and long-term inefficiency in production.

As a result, the most important task for the U.S. big three or the Detroit big three is to look for alternative solutions to avoid high labor cost, launch new models that are more attractive to consumers – both design wise and economic wise, and make higher profits to stay competitive.