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Lecture Accounting (6th edition): Chapter App M - Kimmel, Weygandt, Kieso

Chapter App M - Pricing. In this chapter we will discuss: Compute a target cost when the market determines a product price, compute a target selling price using cost-plus pricing, use time-and-material pricing to determine the cost of services provided,. | Pricing Kimmel ● Weygandt ● Kieso Accounting, Sixth Edition M Compute a target selling price using cost-plus pricing. CHAPTER OUTLINE Compute a target cost when the market determines a product price. 1 2 LEARNING OBJECTIVES Use time-and-material pricing to determine the cost of services provided. 3 Determine a transfer price using the negotiated, cost-based, and market-based approaches. 4 Determine prices using absorption-cost pricing and variable-cost pricing. 5 The price of a good or service is affected by many factors. Regardless of the factors involved, the price must cover the costs of the good or service as well as earn a reasonable profit. ILLUSTRATION M-1 Pricing factors LO 1 LEARNING OBJECTIVE Compute a target cost when the market determines a product price. 1 The price of a good or service is affected by many factors. Company must have a good understanding of market forces. Where products are not easily differentiated from competitor goods, prices are not set by the company, but rather by the laws of supply and demand – such companies are called price takers. Where products are unique or clearly distinguishable from competitor goods, prices are set by the company. Pricing Goods for External Sales LO 1 Laws of supply and demand significantly affect product price. To earn a profit, companies must focus on controlling costs. Requires setting a target cost that will provide the company’s desired profit. TARGET COSTING LO 1 Target cost: Cost that provides the desired profit when the market determines a product’s price. If a company can produce its product for the target cost or less, it will meet its profit goal. TARGET COSTING ILLUSTRATION M-2 Target cost as related to price and profit LO 1 First, company should identify its market niche where it wants to compete. Second, company conducts market research to determine the target price – the price the company believes will place it in the optimal position for the target consumers. Third, company determines its | Pricing Kimmel ● Weygandt ● Kieso Accounting, Sixth Edition M Compute a target selling price using cost-plus pricing. CHAPTER OUTLINE Compute a target cost when the market determines a product price. 1 2 LEARNING OBJECTIVES Use time-and-material pricing to determine the cost of services provided. 3 Determine a transfer price using the negotiated, cost-based, and market-based approaches. 4 Determine prices using absorption-cost pricing and variable-cost pricing. 5 The price of a good or service is affected by many factors. Regardless of the factors involved, the price must cover the costs of the good or service as well as earn a reasonable profit. ILLUSTRATION M-1 Pricing factors LO 1 LEARNING OBJECTIVE Compute a target cost when the market determines a product price. 1 The price of a good or service is affected by many factors. Company must have a good understanding of market forces. Where products are not easily differentiated from competitor goods, prices are not set by the company,