Kế toán, kiểm toán - Chapter 15: Target costing and cost analysis for pricing decisions

Target Costing andCost Analysis forPricing DecisionsChapter 15Major Influences onPricing DecisionsPricingDecisionsPolitical, legal, and image issuesCompetitorsCostsCustomerdemandHow Are Prices Set?CostsMarketForcesPrices are determined by the market, subjectto costs that must be covered in the long run.Prices are based on costs, subject toreactions of customers and competitors.Economic Profit-Maximizing PricingFirms usually have flexibility in setting prices.The quantity sold usually declines as the price is increased.Total Revenue CurveTotal revenueCurve is increasing throughoutits range, but at a declining rate.DollarsQuantity soldper monthDemand Schedule and Marginal Revenue CurveDemandSales price must decreaseto sell higher quantity.Dollarsper unitQuantity soldper monthMarginalrevenueRevenue perunit decreasesas quantity increases.Total Cost CurveDollarsQuantity madeper monthTotal cost increasesat a declining rate.Total cost increasesat an increasing rate.Quantity madeper monthMarginal Cost CurveMarginalcostDollarsper unitQuantity wheremarginal costbegins to increase.Quantity made and soldper monthDetermining the Profit-Maximizing Price and QuantityDollarsper unitDemandMarginalrevenueMarginalcostq*p*Quantity made and soldper monthDetermining the Profit-Maximizing Price and QuantityDollarsper unitDemandMarginalrevenueq*p*MarginalcostProfit is maximized where marginal cost equalsmarginal revenue, resultingin price p* and quantity q*.Determining the Profit-Maximizing Price and QuantityTotal revenueDollarsTotal costTotal profit at the profit-maximizingquantity and price,q* and p*.Quantity made and soldper monthq*Price ElasticityThe impact ofprice changes onsales volumeDemand is elastic ifa price increase has alarge negative impacton sales volume.Demand is inelastic ifa price increase haslittle or no impact on sales volume.Cross ElasticityThe extent towhich a change in a product’s price affects thedemand for othersubstitute products.Limitations of theProfit-Maximizing Model A firm’s demand and marginal revenue curves are difficult to discern with precision. The marginal revenue, marginal cost paradigm is not valid for all forms of markets. Marginal cost is difficult to measure.Role of AccountingProduct Costs in PricingSophisticated decisionmodel and informationrequirementsSimplified decisionmodel and informationrequirementsOptimal DecisionsSuboptimal DecisionsEconomic pricing modelCost-based pricingMarginal-cost andmarginal-revenue dataAccounting product-cost dataMore costlyLess costlyThe best approach, in terms of costs andbenefits, typically lies between the extremes.