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Unformatted text preview: ision then is to accept the special order
despite that the selling price of $26 is less than the total unit
manufacturing cost of $30.The contribution will increase by
Note that the analysis in P. 206 in the book is incorrect analysis
because it treats fixed manufacturing costs as if it were variable,
and this results in reducing operating income by $400,000 and the
wrong decision of special order is to reject it if this approach is
used. Dr. Hussein Khasharmeh
Dr. Hussein Khasharmeh General Influences on Pricing in Practice:
The following factors interact to shape the market and in turn pricing decisions: 1. Legal requirements
a. Predatory pricing b. Discriminatory pricing 2. Competitors’ actions
3. Customer demands
Dr. Hussein Khasharmeh
Dr. Hussein Khasharmeh 1. Legal requirements: International laws often protect
consumers and help protect other companies from:
a. Predatory pricing: Establishing or setting prices so
low that they drive competitors out of the market.
The predatory pricier then has no significant
competition and can raise prices dramatically.
b. Discriminatory pricing: Is charging different prices
to different customers for the same product or
Both predatory and discriminatory pricing practices
are illegal and unethical business practices.
are Dr. Hussein Khasharmeh
Dr. Hussein Khasharmeh 2. Competitors’ actions: Competitors
usually react to the price changes of
other rivals. Many companies will gather
information regarding a rival’s capacity,
technology, and operating policies.
3. Customer demands: If customers
believe price is too high, they may turn to
other sources for the products or
services, substitute a different product,
or decide to produce the item
themselves. Dr. Hussein Khasharmeh
Dr. Hussein Khasharmeh CostPlus Pricing
Prices are set by adding a desired markup to the average cost (the amount by which sales price exceeds cost will gene...
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- Spring '13