Chapter 15 - Target costing and cost analysis for pricing decisions. After completing this chapter, you should be able to: List and describe the four major influences on pricing decisions, explain and use the economic, profit-maximizing pricing model, set prices using cost-plus pricing formulas, discuss the issues involved in the strategic pricing of new products,...
Trang 1Target Costing and Cost Analysis for Pricing DecisionsChapter 15
Trang 2Major Influences on
Pricing Decisions
Pricing Decisions
Political, legal, and image issues
Customer
demand
Trang 3How Are Prices Set?
Forces
Prices are determined by the market, subject
to costs that must be covered in the long run
Prices are based on costs, subject toreactions of customers and competitors
Trang 4Economic Profit-Maximizing Pricing
Firms usually have flexibility in setting prices.
The quantity sold usually declines as the price is increased.
The quantity sold usually declines as the price is increased.
Trang 5Total Revenue Curve
Total revenue
Curve is increasing throughoutits range, but at a declining rateDollars
Quantity soldper month
Trang 6Demand Schedule and Marginal
Revenue Curve
Demand
Sales price must decrease
to sell higher quantity
Dollars
per unit
Quantity soldper month
Marginalrevenue
Revenue perunit decreases
as quantity increases
Trang 7Total Cost Curve
Dollars
Quantity madeper month
Total cost increases
at a declining rate
Total cost increases
at an increasing rate
Trang 8Quantity madeper month
Marginal Cost Curve
Marginalcost
Dollars
per unit
Quantity wheremarginal costbegins to increase
c
Trang 9Quantity made
and soldper month
Determining the Profit-Maximizing Price
Trang 10Quantity made
and soldper month
Determining the Profit-Maximizing Price
in price p* and quantity q*
1510
Trang 11Determining the Profit-Maximizing Price
and Quantity
Total revenue
Total profit at the profit-maximizingquantity and price,
q* and p*
Quantity made
and soldper monthq*
1511
Trang 12Cost-Plus Pricing
Price = cost + (markup percentage ×
cost)
Variablemanufacturing
Trang 13Strategic Pricing of New Products
Uncertainties make pricing difficult.
Trang 14Engineers and cost analysts design a product
that can be made for the allowable cost.
Trang 15Target Costing
Keyprinciples
of targetcosting
Price led
costing
Focus
on the customer
Focus on product design
Trang 16The Role Of Activity-Based
Costing In Setting A
Target Cost
Production Process
Component Activities
Trang 17Product Cost Distortion
High-volume products
may be overcosted
Low-volume products
may be undercosted
Trang 18Value Engineering
and Target Costing
Target cost information
Trang 19Time and Material Pricing
Price is the sum of
labor and material
Trang 20Time and Material Pricing
Time charges:
Total labor hours required
Hourly
labor
cost + Overheadcost per
labor hour + Hourly chargeto provide
+
Overhead per dollar
of material
cost
×
Total material cost incurred
Trang 21Competitive Bidding
High bid price
Low probability
of winning bid
High profit ifwinning bid
Low bid price
High probability
of winning bid
Low profit ifwinning bid
Trang 22Bidder has no
excess capacity
High bid price Bid price should be full cost plus normal profit margin as winning bid will displace existing work
Trang 23Legal Restrictions On Setting Prices
Price discrimination
Predatory pricing