15-13 - cost-plus pricing based on full costs gives...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
13. Four reasons often cited for the widespread use of absorption cost as the cost base in cost-plus pricing formulas are as follows: (1) In the long run, the price must cover all costs and a normal profit margin. (2) Absorption-cost and total-cost pricing formulas provide a justifiable price that tends to be perceived as equitable by all parties. (3) When a company’s competitors have similar operations and cost structures,
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: cost-plus pricing based on full costs gives management an idea of how competitors may set prices. (4) Absorption-cost information is provided by a firm’s cost-accounting system, because it is required for external financial reporting under generally accepted accounting principles. Since absorption-cost information already exists, it is cost-effective to use for pricing....
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern