Understanding a company’s direct and indirect costs is vital for all businesses, especially for startup companies. They have to fathom the pricing they are putting in for products and services to scale up businesses and ascertain sustainability. It is vital to understand the distinction between direct and indirect costs and the actual costs of providing and producing goods and services for consumers (Knez & Simester, 2000). This is because it helps to price accurately and competitively. For this reason, this essay discusses the direct and indirect costs involved in Advoco Inc. Company. It further provides solutions that can be implemented to reduce direct and indirect costs.
Advoco Inc. has instigated direct and indirect costs in various ways. For instance, they have hired skilled trainers for weekly training of employees to better their performance. The Company has also purchased frameworks, developed software and applications such as those telephone aping when ordering products, thus incurring direct costs. Mandatory aspects such as direct labor for employees and purchasing manufacturing supplies such as cups, glues, and raw materials are direct costs for Advoco Inc. (Knez et al., 2000). On the other hand, Advoco has experienced indirect costs through general business expenses that keep the Company running. For example, they have emphasized marketing campaigns and advertising the business products online through websites and social media platforms such as Facebook (Sidibe, 2020). Other examples of indirect costs in Advoco Company include; spacing rent, employee wages, employee benefits and perk programs, utility payments, and insurance costs.
Advoco Company can outsource certain production tasks and review contracts to save on the indirect costs of labor. Moreover, reviewing the level of compensation, promoting job sharing among employees, cross-training employees, and substituting lower costs material where possible can be done to reduce direct costs. In conclusion, every organization such as Advoco should track the expenses incurred. Doing this is vital for avoiding inaccurate record-keeping, claiming tax deductions, and making effective business decisions.
References
Knez, M., & Simester, D. (2000). Direct and Indirect Bargaining Costs and the Scope of the Firm. SSRN Electronic Journal. doi: 10.2139/ssrn.232548
Sidibe, M. (2020). Brands on a mission: How to achieve social impact and business growth through purpose. Routledge.
