BU247 Chapter Notes - Chapter 2: Outsourcing, Sunk Costs, Opportunity Cost
Document Summary
Use cost information in the pricing decision in 2 ways: When organization faces market-determined price, organization uses product cost information to decide if its cost structure will allow it to compete profitably. When organizations can set its price, they"ll set a price that"s an increment of its product"s cost cost plus pricing. Target costing: focus efforts in product and process design on developing a product that has a good profit potential in view of market requirements. Projects or forecasts costs for various levels of production and sales activity. Budgets provide basis for earnings forecasts that senior execs issue to stock market. Compare actual results from the budget period with expectations reflected in the budget to assess how well the organization did. Cost reimbursement contracts, organizations are reimbursed their cost + increment for g/s they provide under contract. Governments are frequent and large-scale users of cost reimbursement contracts often prescribe costing standards that organizations must use when computing reimbursement costs.
