Appendices J - Pricing. After studying this chapter, you should be able to: 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,. | J PRICING Accounting, Fifth Edition After studying this chapter, you should be able to: 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. Determine a transfer price using the negotiated, cost-based, and market-based approaches. Explain issues involved in transferring goods between divisions in different countries. Determine prices using absorption-costing pricing and variable-cost pricing. Learning Objectives 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 J-1 Pricing Goods for External Sales 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 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. LO 1 Compute a target cost when the market determines a product price. Target Costing Pricing Goods for External Sales Target cost: Cost that provides the desired profit when the market determines a product’s price. LO 1 Compute a target cost when the market determines a product price. If a company can produce its product for the target cost or less, it will meet its profit goal. Illustration J-2 Target Costing Pricing Goods for External Sales First, company should identify its market niche where it wants to compete. Second, company conducts market | J PRICING Accounting, Fifth Edition After studying this chapter, you should be able to: 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. Determine a transfer price using the negotiated, cost-based, and market-based approaches. Explain issues involved in transferring goods between divisions in different countries. Determine prices using absorption-costing pricing and variable-cost pricing. Learning Objectives 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 J-1 Pricing Goods for External Sales 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
