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

Target Costing andCost Analysis forPricing DecisionsChapter 15Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Major Influences onPricing DecisionsPricingDecisionsPolitical, legal, and image issuesCompetitorsCostsCustomerdemand15-2How 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.15-3Economic Profit-Maximizing PricingFirms usually have flexibility in setting prices.The quantity sold usually declines as the price is increased.15-4Total Revenue CurveTotal revenueCurve is increasing throughoutits range, but at a declining rateDollarsQuantity soldper month15-5Demand Schedule and Marginal Revenue CurveDemandSales price must decreaseto sell higher quantityDollarsper unitQuantity soldper monthMarginalrevenueRevenue perunit decreasesas quantity increases15-6Total Cost CurveDollarsQuantity madeper monthTotal cost increasesat a declining rateTotal cost increasesat an increasing rate15-7Quantity madeper monthMarginal Cost CurveMarginalcostDollarsper unitQuantity wheremarginal costbegins to increase15-8cQuantity made and soldper monthDetermining the Profit-Maximizing Price and QuantityDollarsper unitDemandMarginalrevenueMarginalcostq*p*15-9Quantity 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*.15-10Determining the Profit-Maximizing Price and QuantityTotal revenueDollarsTotal costTotal profit at the profit-maximizingquantity and price,q* and p*.Quantity made and soldper monthq*15-11Cost-Plus PricingPrice = cost + (markup percentage × cost)Variablemanufacturingcost?Full-absorptionmanufacturingcost?Total cost,including sellingand administrative?Total variable cost,including sellingand administrative?15-12Strategic Pricing of New ProductsUncertainties make pricing difficult.Production costs.Market acceptance.Pricing Strategies:Skimming – initial price is high with intent to gradually lower the price to appeal to a broader market. Market Penetration – initial price is low with intent to quickly gain market share.15-13Target CostingMarket researchdetermines the priceat which a new product will sell.Management computes a manufacturing cost that will provide an acceptable profit margin.Engineers and cost analysts design a productthat can be made for the allowable cost.15-14Target CostingKeyprinciplesof targetcostingPrice led costingFocuson the customerFocus onproductdesignFocus onprocessdesignCross-functionalteamsLife-cyclecostsValue-chainorientation15-15The Role Of Activity-BasedCosting In Setting ATarget CostProduction ProcessComponent Activities15-16Product Cost DistortionHigh-volume productsmay be overcostedLow-volume productsmay be undercosted15-17Value Engineeringand Target CostingTarget cost information Product design Product costs Production processesValue Engineering (VE) Cost reduction Design improvement Process improvement15-18Time and Material PricingPrice is the sum of labor and material charges.Used by construction companies, printers, and professional service firms.15-19Time and Material PricingTime charges:Totallabor hoursrequiredHourlylaborcost+Overheadcost perlabor hour+Hourly chargeto provideprofit margin×Material Charges:Total materialcostincurred+Overheadper dollarof materialcost×Total materialcostincurred15-20Competitive BiddingHigh bidpriceLow probabilityof winning bidHigh profit ifwinning bidLow bidpriceHigh probabilityof winning bidLow profit ifwinning bid15-21Competitive BiddingGuidelines for BiddingBidder hasexcess capacity Low bid price Any bid price in excess of incremental costs of job will contribute to fixed costs and profit. Bidder has noexcess capacity High bid price Bid price should be full cost plus normal profit margin as winning bid will displace existing work.15-22Legal Restrictions On Setting PricesPrice discriminationPredatory pricing15-23