Chapter 24 - Chapter 24 Author Anna Rovira Beavers 1...

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Unformatted text preview: Chapter 24 Author: Anna Rovira Beavers 1 Managerial Accounting Pricing Decisions, Including Target Costing and Transfer Price Chapter 24 I. Pricing Policies: Setting appropriate prices is one of the manager’s most difficult day-to-day decisions. The art of price setting depends on a manger’s ability to read the marketplace and anticipate customer reaction to a product and it price. Some of the objectives of a pricing policy include: 1. Identifying and adhering to both short-run and long-run strategies 2. Maximizing profits 3. Maintaining or gaining market share 4. Setting socially responsible prices 5. Maintaining a minimum rate of return on investment 6. Being customer-driven A. External and Internal Pricing Factors a. External Demand for the product Customer needs Competition Quantity and quality of competing products b. Internal Constrains caused by reduced costs Desired return on investment Materials and Labor Allocation of scarce resources In-Class Group Exercise: SE1 and SE2 II. Traditional Economic Pricing Concepts The traditional approach to pricing is based on microeconomic theory, which states that profit will be maximized when the difference between total revenue and total cost is the greatest. Chapter 24 Author: Anna Rovira Beavers 2 Total Revenue and Total Cost Curves Chart Explanation: Revenue slops down because as companies what to increase the number of units sold discounts and special pricing may be given to accomplish the greatest number of sales. Cost slops up because as the number of units produced increases depreciation may increase, as more equipment may be needed to produce more units, marketing cost may increase, more facility...
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Chapter 24 - Chapter 24 Author Anna Rovira Beavers 1...

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