Unformatted text preview: oking at the effect of the cost accounting methodology on an
important managerial decision: pricing an organization’s products or services.
USES OF FULL COST INFORMATION
Information on the full cost of carrying out a particular endeavor has three basic uses: pricing, profitability assessments, and comparative analyses.
One of the basic functions of cost information is to assist management in setting prices. Clearly, cost information is not the only information that management uses for this purpose, but it is an important ingredient in the decision-making process. Many firms are “price takers;” that is, they must accept whatever price prevails in their market. In these instances, prices are not based on costs but on the market. For other firms, especially market leaders,
cost information is much more important to the pricing decision, although even these firms must consider other
One such factor might be the goal to increase market share, which may justify setting a price below full cost.
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This document was uploaded on 03/30/2014.
- Spring '14