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Lecture Managerial accounting: Creating value in a dynamic business environment (10/e): Chapter 15 - Ronald W. Hilton, David E. Platt

Chapter 15, target costing and cost analysis for pricing decisions. After completing this chapter, you should be able to: List and describe the four major influences on pricing decisions, explain and use the economic, profit-maximizing pricing model, set prices using cost-plus pricing formulas, discuss the issues involved in the strategic pricing of new products,. | Target Costing and Cost Analysis for Pricing Decisions Chapter 15 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 15: Target Costing and Cost Analysis for Pricing Decisions Major Influences on Pricing Decisions Pricing Decisions Political, legal, and image issues Competitors Costs Customer demand 15- Setting the price for an organization’s product or service is one of the most important decisions a manager faces. It is also one of the most difficult, due to the number and variety of factors that must be considered. Customer demand is a very important consideration in pricing decisions. Decisions regarding customers mean that management must find the proper balance between perfect quality and perfect price. The higher the quality, the higher the price. Lower quality means lower price. It is critical for management to find the proper balance that their customers want. . | Target Costing and Cost Analysis for Pricing Decisions Chapter 15 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 15: Target Costing and Cost Analysis for Pricing Decisions Major Influences on Pricing Decisions Pricing Decisions Political, legal, and image issues Competitors Costs Customer demand 15- Setting the price for an organization’s product or service is one of the most important decisions a manager faces. It is also one of the most difficult, due to the number and variety of factors that must be considered. Customer demand is a very important consideration in pricing decisions. Decisions regarding customers mean that management must find the proper balance between perfect quality and perfect price. The higher the quality, the higher the price. Lower quality means lower price. It is critical for management to find the proper balance that their customers want. Competition is another consideration in pricing decisions. If a competitor lowers its price for a similar product, you may have to match its price, or risk losing market share to the competitor. Costs must be held below the market price of the product. In some businesses, the market determines the price. Management can only charge the market price, so it must insure that its costs are below that price in order to make a profit. In the legal area, there are certain laws regarding pricing policies that management must follow. For example, the law prohibits from discriminating against customers when setting prices. Collusion with other businesses in setting prices is also illegal. Public perception of unfair prices could cause political pressure on legislatures for regulatory relief from high prices. The company’s business image and reputation may rest on their pricing policies. Some businesses sell service with higher prices. Others rely on low prices period. How Are Prices Set? Costs .