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Target Cost –Price Determined by Market Target Selling Price- Cost Plus Pricing Time and Material Pricing Transfer Pricing *Negotiated *Cost-based *Market-based Transferring Between Divisions Next Slide Previous Slide End Show Pricing Decisions Few management decisions are more important than setting prices.
Citation preview
11 - 1
Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Managerial AccountingSecond EditionWeygandt / Kieso / Kimmel
ELS
11 - 2
Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Pricing Decisions
Few management decisions are more important than setting prices.
Illustration 11-1
Pricing Factors
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
How Are Most Prices Set?By the competitive market!In other words…Supply and Demand
Used mainly for products that aren’t easily
differentiated from competitive products
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
When Can A Company Set the Price?
How Are Most Prices Set? When the product is specially made
for a customer When there are limited producers of
similar items Patented items Copyrighted works
When a company can differentiate its product -
STARBUCKS
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Target CostThe cost that will provide the desired
profit on a product when the seller does not have control over the product’s price.
Competitive Market Pricing
Price Set by Market $XXXLess:Desired Profit XXTarget Cost $ XX
Illustration 11-2
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
After Target Cost Is Determined…A team of employees with expertise in:
Production Operations Marketing Finance
Assembles to: Design and develop a product with
quality specifications While not exceeding costs
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Target Cost Includes All:
Competitive Market Pricing
Price Set by Market $XXXLess:Desired Profit XXTarget Cost $ XX
• PRODUCT COSTS– Direct Material– Direct Labor– Manufacturing Overhead
• PERIOD COSTS– Selling– Administrative
necessary to: • MAKE and • MARKET the product.
11 - 9
Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Target Selling PriceThe selling price that will provide
the desired profit on a product when the seller has the ability to determine the product’s price.
Illustration 11-3
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Target Selling PriceThe selling price that will provide
the desired profit on a product when the seller has the ability to determine the product’s price.
Illustration 11-3
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Cost-Plus PricingAdvantage: Easy to computeDisadvantages: Doesn’t consider demand
(Will the customer pay the price?)
Fixed cost per unit changes with change in volume
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Markup
The percentage applied to a product’s cost to determine the product’s selling price.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Time and Material Pricing
An approach to cost-plus pricing in which the company uses two pricing rates:
• One for the labor used on a job
• One for the material.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Time and Material PricingUsed in service industries:Public accounting firmsLaw firmsEngineering, consulting firmConstruction companiesRepair shopsPrinters
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Material Loading Charge
A charge added to cover the cost of :
PurchasingReceiving Handling Storing Materials, plus any desired profit
margin on the materials themselves.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Internal Sales -
How do you price goods when they are “sold” within the company?
Companies often expand in direction of its suppliers or customers.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Transfer Price
The price used to record the transfer between two divisions of a company.
Illustration 11-15
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Transfer Price Approaches
• Negotiated transfer prices• Cost-based transfer prices• Market-based transfer prices
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Negotiated Transfer Price
A transfer price that is determined by the agreement of the division managers when no external market price is available.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Review – Opportunity Cost
The potential benefit that may be obtained from following an alternate course of action.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Negotiated Transfer Price
No Excess Capacity:Minimum Transfer Price
Illustration 11-17
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Negotiated Transfer Price
No Excess Capacity:
Illustration 11-17
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Negotiated Transfer Price
Excess Capacity:Minimum Transfer Price
Illustration 11-19
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Negotiated Transfer Price
Excess Capacity:
Illustration 11-20
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Cost-Based Transfer Price
A transfer price that uses as its foundation the costs incurred by the division producing the goods.
Bad deal for division that is transferring.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Cost-Based Transfer PriceIllustration 11-23
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Market-Based Transfer Price
A transfer price that is based on existing market prices of competing products.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Outsourcing
Contracting with an external party to provide a good or service, rather than performing the work internally.
11 - 29
Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Transfer Between Divisions in Different Countries
Causes BIG tax problems-
Let the CPAs handle it!
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
COPYRIGHTCopyright © 2002, John Wiley & Sons, Inc. All rights reserved.Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without theexpress written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibilityfor errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
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