ADMS 1500 Lecture 9: Chapter 9 – pricing

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Pricing for external sales: target costing: the company determines its target cost. Once target-selling price is set, it determines its target cost by setting a desired profit. Difference between target price and the desired profit is the target cost of the product. Formula: market price desired profit = target cost: total cost-plus pricing: company"s determines a cost base and adds a mark up to it to determine a target-selling price. Formula: selling price cost = mark-up (profit: absorption cost-plus pricing: uses the manufacturing cost as the cost base and covers the selling and administrative cost plus the target roi through the mark-up. Formula: manufacturing cost per unit = (mark-up percentage x manufacturing cost per unit): variable cost-plus pricing: uses all of the variable costs, including selling and administrative costs, as the cost base and covers the fixed costs and target.

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