Chapter%208%20-%20ACCT%202332%20-%20spring%202010

Chapter%208%20-%20ACCT%202332%20-%20spring%202010 - Chapter...

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Chapter Chapter 8: 8: Costs and Pricing Decisions Costs and Pricing Decisions 1.Discuss the profit maximizing price for a product or service. 2.Explain the cost-plus approach to pricing and discuss its limitations. 3.Use incremental analysis to price a special order. 4.Explain the target costing process for a new product. 5.Analyze customer profitability and explain the activity-based pricing approach.
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The Profit Maximizing Price The Profit Maximizing Price Economic theory: When price is lowered, we can sell more units and when price goes up, we can sell less. We need to set the price so that our profits are maximized. We need to estimate the quantity sold at each alternative price, and find the maximizing price.
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The Profit Maximizing Price The Profit Maximizing Price What is the profit maximizing price?
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In the decision on the profit maximizing price the In the decision on the profit maximizing price the fixed costs: fixed costs: 1 2 3 4 25% 1. Are Relevant Costs 2. Are Irrelevant costs 3. Do not affect net profit 4. Increase with the selling price
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The Profit Maximizing Price The Profit Maximizing Price The fixed costs are not relevant to the profit maximizing decisions because they are the same in all alternatives. However, if we are making negative profit in the profit maximizing price we might need to consider not producing the product at all in the long-run.
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Cost-Plus Pricing Cost-Plus Pricing Some companies, because they find it difficult to estimate demand, use cost-plus pricing for their products: They measure the full cost of a unit And add a mark-up percentage to get to the price.
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Chapter%208%20-%20ACCT%202332%20-%20spring%202010 - Chapter...

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