Drhusseinkhasharmeh drhusseinkhasharmeh

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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 $200,000. $200,000. Note that the analysis in P. 206 in the book is incorrect analysis Note incorrect 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: consumers 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. competition b. Discriminatory pricing: Is charging different prices to different customers for the same product or service. service. Both predatory and discriminatory pricing practices are illegal and unethical business practices. are Dr. Hussein Khasharmeh Dr. Hussein Khasharmeh 2. Competitors’ actions: Competitors 2. usually react to the price changes of other rivals. Many companies will gather information regarding a rival’s capacity, technology, and operating policies. technology, 3. Customer demands: If customers 3. 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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