管理會(huì)計(jì)英語6

1、.Cost InformationforPricingandProduct PlanningChapter 6.Role Of Product Costs In Pricing And Product Mix Decisions Understanding how to analyze product costs is important for making pricing decisions: Managers make decisions about establishing or accepting a price for their products Even when prices

2、 are set by the market and the firm has little or no influence on product prices, management still has to decide the best mix of products to manufacture and sell.Role of Product Costs Product cost analysis is also significant when a firm is deciding how best to deploy marketing and promotion resourc

3、es How much commission (or how many other incentives) to provide the sales force for different products How large a discount to offer off list prices.Short-term and Long-termPricing Considerations The costs of many resources are likely to be committed costs in the short-term because firms cannot eas

4、ily alter the capacities made available for many production and support activities For short-term decisions, it is important to note whether surplus capacity is available for additional production, or whether shortages of available capacity limit additional production alternatives.Short-term and Lon

5、g-termPricing Considerations The length of time a firm must commit its production capacity to fill that order is important because a long-term capacity commitment to a marginally profitable order may: Prevent the firm from deploying its capacity for more profitable products or orders, should demand

6、for them arise in the future Force the firm to add expensive new capacity to handle future sales increases.Short-term and Long-termPricing Considerations If production is constrained by inadequate capacity, managers need to consider whether overtime production or the use of subcontractors can help a

7、ugment capacity in the short term In the long term, managers have considerably more flexibility to adjust the capacities of activity resources to match the demand for them in producing various products Decisions about whether to introduce new products or eliminate existing products have long-term co

8、nsequences.Ability To Influence Prices If the firm is one of a large number of firms in an industry, and if there is little to distinguish the products of different firms from each other: Such a firm is a price taker, and it chooses its product mix given the prices set in the marketplace for its pro

9、ducts.Ability To Influence Prices Firms in an industry with relatively little competition, who enjoy large market shares and exercise industry leadership, must decide what prices to set for their products Firms in industries in which products are highly customized or otherwise differentiated from ea

10、ch other also need to set the prices for their differentiated products Such firms are price setters.Price Takers A small firm, or a firm with a negligible market share in this industry, behaves as a price taker It takes the industry prices for its products as given and then decides how many units of

11、 each product it should produce and sell.Short-Term Decisions for Price Takers A price taker should produce and sell as much as it can of all products whose costs are less than industry prices Managers must decide which costs are relevant to the short-term product mix decision Managers may have litt

12、le flexibility to alter the capacities of some of the firms resources in the short-run.Example - Garment Manufacturer Chunling Company that sells five types of ready-made garments to discount stores such as Kmart and Wal-Mart The company is operating at full capacity and is contemplating short-term

13、adjustments to its product mix It is necessary for the company to determine: What costs will vary with production levels in this period What costs will remain fixed when a change occurs in the production mix.Example - Garment Manufacturer The costs of utilities, plant administration, maintenance, an

14、d depreciation for the machinery and plant facility will not alter with a change in the product mix, because the plant is operating at full capacity Varying with the quantity of each garment produced are: The costs of direct materials The direct labor that is paid on a piece-rate basis Inspectors ar

15、e paid a monthly fixed salary, but they are employed as required to support the production of different garments.Example - Garment Manufacturer If its capacity were unlimited, the company could produce garments to fill the maximum demand for them Capacity is constrained, however, and therefore the c

16、ompany must decide how best to deploy this limited resource The capacity is fixed in the short-term, so the company must plan production to maximize the contribution to profit earned for every available machine hour used.The Impact Of Opportunity Costs If the garment manufacturer receives a special

17、order request, it would have to decide the minimum price it would accept Because its production capacity is limited, the company must cut back the production of some other garment to enable it to produce the goods for the special order Giving up the production of some profitable product results in a

18、n opportunity cost, which equals the lost profit on the garments that the company can no longer make.The Impact Of Opportunity Costs The lost profit in this case would be the contribution on the goods it will not make The product with the lowest contribution per hour should be sacrificed The profit

19、(contribution) lost on those products would need to be covered by the price of the special order.Short-Term Pricing Decisionsfor Price Setters In many businesses, potential customers request that suppliers bid a price for an order before they decide on the supplier with whom they will place the orde

20、r.Determining a Bid Price Assume that the full costs for the job are estimated to be $28,500 Setting the price of a product also means determining a markup percentage above cost, an approach known as cost-plus pricing Cost-plus pricing - the markup percentage is determined by a companys desired prof

21、it margin and overall rate of return The company has decided the markup percentage is normally to be 40% of full costs.Determining a Bid Price If the bid request came from a regular customer, the bid price would have been $39,900= 1.40 x $28,500 But for this special order from a new customer, what i

22、s the minimum acceptable price? One of the critical factors to consider is the level of available surplus capacity.Available Surplus Capacity The companys incremental costs of filling the order will be $ 22,000 (material, direct labor, batch related expenses) The costs of supervision and business-su

23、staining support activities will not increase if excess capacity of these resources is available to meet the production needs of the order The price that the company should bid must cover the incremental costs for the job to be profitable The company would likely add a profit margin above incrementa

24、l costs and make the bid price something higher than $22,000, depending on competitive and demand conditions.No Available Surplus Capacity If surplus machine capacity is not available, the company will have to incur additional costs to acquire the needed capacity Companies often meet such short-term

25、 capacity requirements by operating its plant overtime More machine maintenance and plant engineering activities will be necessary.No Available Surplus Capacity the company incurs additional rental costs for the extra use of machines when it adds an overtime shift Assume management estimates the ord

26、er would cause: $5,100 of incremental supervision costs (including overtime premium) $5,400 of incremental business-sustaining costs Thus, the total cost of overtime required to manufacture customized tools for the order is $10,500 ($5100 + $5400).No Available Surplus Capacity The minimum acceptable

27、 price in this case is $32,500 ($22,000 + $10,500) The minimum acceptable price must cover all incremental costs.Long-Term Pricing Decisionsfor Price Setters The relevant costs for the short-term special order pricing decision differ from the full costs of the job Most firms rely on full-cost inform

28、ation reports when setting prices.Use of Full Costs in PricingEconomic justification for using full costs for pricing decisions in three types of circumstances: Many contracts for the development and production of customized products and many contracts with governmental agencies specify that prices

29、should equal full costs plus a markup, and prices set in regulated industries are based on full costs1. When a firm enters into a long-term contractual relationship with a customer to supply a product, it has great flexibility in adjusting the level of commitment for all resources.Use of Full Costs

30、in Pricing Most activity costs will depend on the production decisions under the long-term contract, and full costs are relevant for the long-term pricing decision In many industries, firms make short-term adjustments in prices, often by offering discounts from list prices instead of rigidly employi

31、ng a fixed price based on full costs3. When demand for their products is low, the firms recognize the greater likelihood of surplus capacity in the short term.Use of Full Costs in Pricing They adjust the prices of their products downward to acquire additional business based on the lower incremental

32、costs they incur when surplus capacity is available When demand for their products is high, they recognize the greater likelihood that the existing capacity of activity resources is inadequate to satisfy all of the demand They adjust the prices upward based on the higher incremental costs they incur

33、 when capacity is fully utilize, thereby rationing the available capacity to the highest profit opportunity.Fluctuating Prices Because demand conditions fluctuate over time, prices also fluctuate with demand conditions over time Most hotels offer special weekend rates that are considerably lower tha

34、n their weekday rates Many amusement parks offer lower prices on weekdays when demand is expected to be low Airfares between New York and London are higher in summer, when the demand is higher, than in winter, when the demand is lower Long-distance telephone rates are lower in the evenings and on th

35、e weekends when the demand is lower.Fluctuating Prices Although fluctuating short-term prices are based on the appropriate incremental costs, over the long term their average tends to equal the price based on the full costs that will be recovered in a long-term contract Most firms use full cost-base

36、d prices as target prices, giving sales managers limited authority to modify prices as required by the prevailing competitive conditions.The Markup Rate Just as prices depend on demand conditions, markups increase with the strength of demand Markups also depend on the elasticity of demand Markups al

37、so fluctuate with the intensity of competition.The Markup Rate Firms decide on markups for strategic reasons: A firm may choose a low markup for a new product to penetrate the market and win over market share from an established product of a competing firm Many internet businesses have adopted the s

38、trategy of setting low prices to build the business, acquire a brand name, build a loyal customer base, and garner market share Firms sometimes employ a skimming price strategy where initially a higher price is charged to customers who are willing to pay more for the privilege of possessing the late

39、st technological innovations.Long-Term Decisions for Price Takers Decisions to add a new product or to drop an existing product from the portfolio of products usually have significant long-term implications for a firms cost structure Product-sustaining costs are relevant costs for such decisions Bat

40、ch-related costs are also likely to alter if a change occurs in the product mix either in favor of or against products manufactured in large batches.Profit Increase is Not AutomaticDropping products will help improve profitability only if the managers: Eliminate the activity resources no longer requ

41、ired to support the discontinued product, or Redeploy the resources from the eliminated products to produce more of the profitable products that the firm continues to offerCosts result from commitments to supply activity resources They do not disappear automatically with the dropping of unprofitable

42、 products1. Only when companies eliminate or redeploy the resources themselves will actual expenses decrease.Summary Managers use cost information to assist them in pricing and in product mix decisions The manner in which they use cost information in making these decisions depend on whether the firm

43、 is a major or minor entity in its industry The role of cost information also depends on the time frame involved in the decision.Economic Analysis of the Pricing DecisionAppendix 6-1 .Quantity Decision Introductory textbooks in economics usually analyze the profit maximization decision by a firm in

44、terms of the choice of a quantity to produce. In turn, the quantity choice determines the price of the product in the marketplace Economists present the quantity choice in terms of equating marginal revenue and marginal cost.Quantity Decision The firm chooses the quantity level, and the market deman

45、d conditions determine the corresponding price The firm that must choose a price, not a quantity, to announce to its customers Customers react to the price announced and determine the quantity that they demand The price decision analysis uses differential calculus to analyze the firms pricing decisi

46、on.Pricing Decision Total costs, C, expressed in terms of its fixed and flexible cost components are: C = f + vQ, Where f is the committed cost, v is the flexible cost per unit, and Q is the quantity produced in units Quantity produced is assumed to be the same as quantity demanded The demand, Q, is

47、 represented as a decreasing linear function of the price P: Q = a bP A higher value of b represents a demand function that is more sensitive (elastic) to price.Pricing Decision An increase of a dollar in the price decreases demand by b units A higher value of a reflects a greater strength of demand

48、 for the firms product. For any given price, P, the demand is greater when the parameter, a, has a higher value The total revenue, R, is given by the price, P, multiplied by the quantity sold, Q. Algebraically, we write this:R = PQ = P(a bP) = aP bP2 The profit, , is measured as the difference betwe

49、en the revenue, R, and the cost, C:.Pricing Decision = R - C= PQ - (f + vQ)= P(a - bP) - F - v(a - bP)= aP - bP2 - F - va + vbP To find the profit-maximizing price, P*, we set the first derivative of profit P with respect to P equal to zero:d /dP = A 2bP + vb = 0 This equation implies:P* = (a + vb)/

50、2b = a/2b + v/2.Long-Term Benchmark Prices This simple economic analysis suggests that the price depends only on v, the flexible cost per unit A more complex analysis that considers simultaneously the pricing decision and the long-term decisions of the firm to commit resources to facility-sustaining

51、, product-sustaining, and other activity capacities indicates that the costs of these committed resources do play a role in the pricing decision The costs of these committed activity resources appear to be committed costs in the short-term, but they can be changed in the long-term.Long-Term Benchmar

52、k Prices (2 of 2) The prices that a firm sets and adjusts in the short term, based on changing demand conditions, fluctuate around a long-term benchmark price, pL, that reflects the unit costs of the activity resource capacities:pL = a/2b + (v + m)/2 m = f X is the cost per unit of normal capacity, X, of facility-sustaining activities the degree of price fluctuati