Textbook Notes (368,795)
Canada (162,165)
MGAC03H3 (13)
G.Quan Fun (10)
Chapter 12

Chapter 12 Notes

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Financial Accounting
G.Quan Fun

Chapter 12 Pricing Decisions Product Profitability Decisions and Cost Management NotesMajor Influences on Pricingthere are 3 major influences on pricing decisions customers competitors and costsin very competitive markets with similar goods the market sets the price but cost data can help these sellers decide on the output levels that best meet a companys particular profit objectivein less competitive markets where features distinguish one product from another managers have some tact in setting pricesfor these differentiated products the pricing decision depends on 3 factors1 how much customers value the product 2 the costs of the product and 3 the pricing strategies of competitorsthe price of a product or service is the outcome of the interaction between demand for the product or service and its supplycustomers influence prices through their effect on demand while costs influence prices through their effect on supplycompetitors offer alternative or substitute products and thereby affect supply demand and priceTarget Pricing Using Target CostingAlternative LongRun Pricing Approachesthe starting point for pricing decisions can be marketbased target pricing costbased also called costplus and lifecyclesome companies start by anticipating customer and competitor reactions and then examine coststhe marketbased approachin contrast other companies first look at costs and then consider customers or competitorsthe costbased approachTarget Pricing and Target Costingtarget price per unitthe estimated price for a product or service that potential customers will paytarget operating income per unitthe operating income that a company wants to earn on each unit of a product or service solda companys sales and marketing organization through close contact and interaction with customer is usually in best position to identify customers needs and their perceived value for a product or servicecompanies also conduct market research studies about product features that customers want and the prices they are willing to paytarget cost per unitthe estimated longrun cost per unit of a product or service that when sold at the target price enables the company to achieve the target operating income per unitvalue engineeringanalysis of entire value chain of all business functions to find where nonvalueadded costs can be reducedValueAnalysis and CrossFunctional Teamscost incurrencecosts are incurred when a resource is sacrificed or consumedlockedin costs or designedin costs
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