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ACC501 MOD2 CASE2-A Revised Income Statement

ACC501 MOD2 CASE2-A Revised Income Statement - Running head...

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Running head: A REVISED INCOME STATEMENT 1 A Revised Income Statement, the Contribution Margin Approach ________________________ TUI University 3/26/12
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A REVISED INCOME STATEMENT 2 A Revised Income Statement, the Contribution Margin Approach Various terms exist when discussing the concept of value costing or value-based pricing. Each term describes valuable ways in which organizations can create various strategies to improve business operations. The following will examine 1. The notion of value costing as a 21st century concept. 2. Types of situations that may be more appropriate for application of some "tried and true" costing methods of the 20th Century. 3. Whether such situations are industry or firm specific. 4. Relevance of the Cost-Volume-Profit (CVP) Analysis in the 21st century business model. In the 21st century, value costing is imperative to organizations when facing competition and also in achieving a competitive advantage. Essentially, value costing or value-based pricing focuses on consumers’ willingness to pay the stated price relative to the benefits offered by an entity. Such techniques can be profitable in that businesses can charge customers based on product benefits. Alternatively, if a customer is only driven by price in lieu of benefits, an organization can lose its competitive advantage (Wikipedia). Additionally, value costing is also significant in understanding the effectiveness of business operations and projects and includes various cost factors that affect the organizational process. The notion of value costing for the 21st Century organizations The notion of value costing for the 21st century organizations is necessary in determining profitability of new projects. Various costing methods also allow
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A REVISED INCOME STATEMENT 3 management to make decisions more soundly and appropriately to achieve core competency. Cost refers to the amount spend in producing goods or services and relative to business cost is money spent throughout all departments to provide a commodity or service. This includes a summation of operational, general, and overhead expenditures and all direct and indirect costs are summed up to include the total production cost.
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