Академический Документы
Профессиональный Документы
Культура Документы
strategic planning
Evaluate strategic options
using marginal and relevant
costing
Pricing strategies
Effective use
Discontinue/Closure
of scarce resources
decisions
Make/Buy
Acceptance of
Special order
Pricing strategies
Establish a Pricing strategy that
recognises both economic and noneconomic factors
Factors influencing pricing are:
1.
2.
3.
4.
5.
6.
Pricing strategies
1. Mission and marketing objectives
2. Pricing objectives
3. Costs
Pricing strategies
4. Competition 4 types of market
Pricing strategies
5. Consumers:
Suppliers need to keep in mind what the
consumers are willing to pay.
Common to segment markets in this
situation
Perceived value of goods to consumers
6.
Controls:
some industries are closely regulated by
statute and reguilation, therefore little
power to choose their own prices.
Competition pricing:
Match what competitors are charging
Strategic approaches
Market skimming, market penetration, related product pricing, product line
opricing.
Marginal Costing for short-run decision-making
Marginal costing is a costing principle whereby
variable costs are charged to cost units and the
fixed costs attributable to the relevant period are
written off in full against the contribution for that
period. (CIMA)
In marginal costing all costs are classified
according to how they behave. They are either
variable or fixed.
In the short-run all fixed costs remain unchanged
and therefore treated as irrelevant.
The only relevant costs are variable costs ie.
those costs which increase/decrease as output
increases/decreases.
Example
Product
1,000
2,000
500
35
25
15
15
10
-----
-----
-----
20
15
10
20
15
10
20
(3)
(2)
(1)
Contribution per
machine hr.
Ranking
Desired production
level
15,000
Available hours
Product Z
Product Y
2,000 x 5 hrs
Product X
200 x 20
1,000 hrs
10,000 hrs
4,000 hrs
Make or Buy
Sometimes management may have to consider whether it is best to
manufacture products or components or to sub-contract them out and
purchase them externally.
Example:
Direct materials
2
Direct wages
3
Variable overheads
2
-----Variable cost of production
7
-----Assume spare capacity and the fixed costs remain unchanged.
Obviously it is cheaper to make than to buy.
However, if the firm is working at full capacity and to make component Q involves moving
some of the capacity from product P then the decision is a little more involved.
Selling price
16
Direct materials
6
Direct labour
4
Variable overhead
2
-----Contribution
4
-----
The production rate for product P is 5 units per hour and for component Q is 10.
The effective cost of making a unit of component Q is:
X Ltd. makes a product which sells for 1.50.
The output for the period is 80,000 units of
product which represents 80% capacity . Total
costs are 90,000 and of these it is estimated
that 26.000 are fixed costs. A potential
customer offers to buy 20,000 units at 1.10 and
this will use up the companys spare capacity.
Should management accept this special order?
Special order:
22,000
16,000
---------6,000
----------
Shut-down decisions
Often management wish to analyse the performance of their
products, branches, divisions.
Consider the following example.
Product
Total
20,000
50,000
25,000
95,000
Direct materials
1,000
15,000
10,000
26,000
Direct labour
3,000
16,000
14,000
33,000
Fixed overheads
2,000
7,000
9,000
18,000
--------
--------
--------
--------
6,000
38,000
33,000
77,000
--------
--------
--------
--------
14,000
12,000
(8,000)
18,000
Sales
Less
Profit/(Loss)
Prtoduct
Sales
Total
20,000
50,000
25,000
95,000
4,000
31,000
24,000
59,000
--------
--------
--------
--------
16,000
19,000
1,000
36,000
Less
Variable costs
Contribution
Fixed costs
18,000
--------
Net profit
18,000
--------