Chapter 22 - Pricing. In this chapter, you will learn 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. | 22-1 22 Pricing Learning Objectives 22-2 1 Compute a target cost when the market determines a product price. 2 Compute a target selling price using cost-plus pricing. 3 Use time-and-material pricing to determine the cost of services provided. 4 Determine a transfer price using the negotiated, cost-based, and market-based approaches. LEARNING OBJECTIVE 1 Compute a target cost when the market determines a product price. The price of a good or service is affected by many factors. Illustration 22-1 Pricing factors Regardless of the factors involved, the price must cover the costs of the good or service as well as earn a reasonable profit. 22-3 LO 1 Pricing Goods for External Sales The price of a good or service is affected by many factors. 22-4 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. LO 1 Management Insight Google The Only Game in Town? Pricing plays a critical role in corporate strategy. For example, almost 50% of tablet computer users say that they use them to read newspapers and magazines. And since Apple’s iPad tablet computer at one time represented 75% of the tablets being sold, Apple felt like it had the newspaper and magazine publishers right where it wanted them. So it decided to charge the publishers a fee of 30% of subscription revenue for subscriptions sold at Apple’s App Store. Publishers were outraged, but it didn’t take long for somebody to come to their rescue. Within 1 day of Apple’s announcement, Google announced that it would only charge a fee of about 10% of subscription revenue for users of its Android system. That might at least partially explain why Sports Illustrated provided an app to run on .
