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Lecture Cost management: Measuring, monitoring, and motivating performance (3rd edition) – Chapter 14

Chapter 14 - Strategic investment decisions. In this chapter students will be able to: Explain how strategic investment decisions are made, identify relevant cash flows and perform net present value (NPV) analysis for capital investment decisions, identify the uncertainties of NVP analysis,. | Learning Objectives LO1 Compare the different pricing methods and calculate prices using each method LO2 Discuss other market-based sources of pricing information LO3 Explain the uses and limitations of cost-based and market-based pricing LO4 Explain price elasticity of demand and its impact on pricing LO5 Discuss the additional factors that affect price LO6 Compare the different pricing methods used for transferring goods and services within an organization LO7 Discuss the uses and limitations of different transfer pricing methods LO8 Discuss additional factors that affect transfer prices Chapter 14: Pricing Decisions LO1 Compare the different pricing methods and calculate prices using each method Cost-Based Pricing A selling price that is computed as the product’s cost plus a markup is known as a cost-based price. The costs included in the base cost can be variable costs only or variable plus fixed costs. Some companies include only production costs in the cost base and others include production, selling, and administrative costs. The first bullet is automated. One click is required for each remaining bullet. Time and Material Pricing In service organizations, cost-based pricing is determined by calculating a labour rate and a materials loading charge. The labour rate includes 1) direct labour salaries plus benefits, 2) selling and administrative costs and related overhead costs, 3) A desired profit amount. The materials loading charge includes 1) all costs associated with purchasing, receiving, handling, and storing materials, 2) a desired profit percentage. Market-Based Pricing A product’s selling price depends on the degree of competition and the degree to which the company’s product is differentiated from competitors’ products. Market-based prices are based on customer demand for the product. The sensitivity of customer demand to changes in the selling price is called the price elasticity of demand. The first bullet is automated. One click is required for . | Learning Objectives LO1 Compare the different pricing methods and calculate prices using each method LO2 Discuss other market-based sources of pricing information LO3 Explain the uses and limitations of cost-based and market-based pricing LO4 Explain price elasticity of demand and its impact on pricing LO5 Discuss the additional factors that affect price LO6 Compare the different pricing methods used for transferring goods and services within an organization LO7 Discuss the uses and limitations of different transfer pricing methods LO8 Discuss additional factors that affect transfer prices Chapter 14: Pricing Decisions LO1 Compare the different pricing methods and calculate prices using each method Cost-Based Pricing A selling price that is computed as the product’s cost plus a markup is known as a cost-based price. The costs included in the base cost can be variable costs only or variable plus fixed costs. Some companies include only production costs in the cost base and others .