CHAPTER 12 PRICING DECISIONS AND COST MANAGEMENT

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The three major influences on pricing decisions are: 1. Customers, who influence price through their effect on demand for a product or service. 2. Competitors, who offer alternative or substitute pr... oducts or services a customer could choose. 3. Costs that affect the supply of a product or service. 12-2 Not necessarily. For a one-time-only special order, the relevant costs are only those costs that will change as a result of accepting the order. In this case, full product costs will rarely be relevant. It is more likely that full product costs will be relevant costs for long-run pricing decisions. 12-3 Two examples of pricing decisions with a short-run focus: 1. Pricing for a one-time-only special order with no long-term implications. 2. Adjusting product mix and volume in a competitive market. 12-4 Activity-based costing helps managers in pricing decisions in two ways. 1. It gives managers more accurate product-cost information for making pricing decisions. 2. It helps managers to manage costs during value engineering by identifying the cost impact of eliminating, reducing, or changing various activities. 12-5 Two alternative starting points for long-run pricing decisions are: 1. Market-based pricing, an important form of which is target pricing. The market-based approach asks, “Given what our customers want and how our competitors will react to what we do, what price should we charge?” 2. Cost-based pricing which asks, “Given what it costs us to make this product, what price should we charge that will recoup our costs and achieve a required return on investment?” [Show More]

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