costacctg13_sm_ch12 - CHAPTER 12 PRICING DECISIONS AND COST...

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12-CHAPTERCHAPTERCHAPTER121212PRICINGPRICINGPRICINGDECISIONSDECISIONSDECISIONSANDANDANDCOSTCOSTCOSTMANAGEMENTMANAGEMENTMANAGEMENT12-112-112-1The three major influences on pricing decisions are1.Customers2.Competitors3.Costs12-212-212-2Not necessarily. For a one-time-only special order, the relevant costs are only those coststhat will change as a result of accepting the order. In this case, full product costs will rarely berelevant. It is more likely that full product costs will be relevant costs for long-run pricingdecisions.12-312-312-3Two examples of pricing decisions with a short-run focus:1.Pricing for a one-time-only special order with no long-term implications.2.Adjusting product mix and volume in a competitive market.12-412-412-4Activity-based costing helps managers in pricing decisions in two ways.1.It gives managers more accurate product-cost information for making pricing decisions.2.It helps managers to manage costs during value engineering by identifying the costimpact of eliminating, reducing, or changing various activities.12-512-512-5Two alternative starting points for long-run pricing decisions are1.Market-based pricing, an important form of which is target pricing. The market-basedapproach asks, “Given what our customers want and how our competitors will react to what wedo, what price should we charge?”2.Cost-based pricing which asks, “What does it cost us to make this product and, hence,what price should we charge that will recoup our costs and achieve a target return oninvestment?”12-612-612-6
12-912-912-9No. It is important to distinguish between when costs are locked in and when costs areincurred, because it is difficult to alter or reduce costs that have already been locked in.
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12-1112-1112-11Cost-plus pricing methods vary depending on the bases used to calculate prices.Examples are (a) variable manufacturing costs; (b) manufacturing function costs; (c) variableproduct costs; and (d) full product costs.12-1212-1212-12Two examples where the difference in the costs of two products or services is muchsmaller than the differences in their prices follow:1.

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