Chapter 8 Notes

Chapter 8 Notes - To produce the pump the company must...

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Profit Maximizing Price Simply subtract variable costs from price to obtain the contribution margin, multiply the contribution margin by the quantity demanded, subtract fixed costs, and estimate profit. The price with the highest profit should be selected. D = A C r Unit Contribution Margin per Unit Total C $1,500 $4,500 1,500 4,000 1,500 3,500 1,500 3,000 1,500 2,500 1,500 2,000 1,500 1,500 1,500 1,000 Special Orders S pecial orders : orders for goods or services that are not considered part of a company's normal business. The price charged for a special order is not expected to affect prices charged in the normal course of business, and, thus, the price may deviate substantially from what is common. Cost Plus Pricing Cost Plus Pricing : the company starts with an estimate of product cost (typically excluding any selling or administrative costs) and adds a markup to arrive at a price that allows for a reasonable level of profit.
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Unformatted text preview: To produce the pump, the company must incur $1,000,000 of annual fixed costs and variable costs of $200 per unit. The company estimates that it can sell 10,000 pumps annually and marks up cost by 30 percent. In this case, as indicated in the top section of Illustration 8-3 , the price will be $390 per unit, which includes total cost of $300 and markup of $90. ss (say 9,000 units) Target Costing Target Costing : an integrated approach to determining product features, product price, product cost, and product design that helps ensure a company will earn a reasonable profit on new products. Activity Based Pricing activity-based pricing :an approach to pricing in which customers are presented with separate prices for services they request in addition to the cost of goods they purchase....
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This note was uploaded on 02/04/2011 for the course ACG 2071 taught by Professor Lopez during the Summer '08 term at Valencia.

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Chapter 8 Notes - To produce the pump the company must...

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