CHAPTER13PricingDecisionsandCostManagement

Chapter13learningobjectivesDiscussthethreemajorfactorsthataffectpricingdecisionsUnderstandhowcompaniesmakelong-runpricingdecisionsPriceproductsusingthetarget-costingapproachApplytheconceptsofcostincurrenceandlocked-incostsPriceproductsusingthecost-plusapproach13-2

Chapter13learningobjectives,concludedUselife-cyclebudgetingandcostingwhenmakingpricingdecisionsDescribetwopricingpracticesinwhichnoncostfactorsareimportantExplaintheeffectsofantitrustlawsonpricing13-3

MajorfactorsthataffectPricingdecisionsHowcompaniespriceaproductorserviceultimatelydependsonthedemandandsupplyforit.Threeinfluencesondemandandsupplyare:CustomersCompetitorsCosts13-4

InfluencesonDemandandSupplyCustomers—influencepricethroughtheireffectonthedemandforaproductorservice,basedonfactorssuchasproductfeaturesandquality.Competitors—influencepricethroughtheirtechnologies,plantcapacitiesandoperatingstrategieswhichaffecttheircosts.Costs—influencepricesbecausetheyaffectsupply(thelowerthecost,thegreaterthequantityafirmiswillingtosupply).13-5

CostingandPricingforthelong-runShort-runpricingdecisionshaveatimehorizonoflessthanoneyearandincludedecisionssuchas:Pricingaone-time-onlyspecialorderwithnolong-runimplicationsAdjustingproductmixandoutputvolumeinacompetitivemarket.Long-runpricingisastrategicdecisiondesignedtobuildlong-runrelationshipswithcustomersbasedonstableandpredictableprices.Managerspreferastableprice.13-6

CostallocationRecallthatindirectcostsofaparticularcostobjectarecoststhatarerelatedtothatcostobjectbutcannotbetracedtoitinaneconomicallyfeasible(cost-effective)way.Thesecostsoftencomprisealargepercentageoftheoverallcostsassignedtocostobjects.Costallocationsinfluencemanagers’costmanagementdecisionsasw