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1、Chapter12,Pricing Decisions and Cost Management,Key Terms,Competitive Markets 完全竞争市场Less-Competitive Markets 不完全竞争市场Non-Competitive Markets 非竞争性市场（垄断市场）Cost-Plus 成本加成法Target Price 目标价格，预订价格Value Engineering 价值工程Value-Added Cost 增值成本Price Discrimination 价格歧视Peak-Load Pricing 旺季定价法Predatory Pricing 掠夺
2、性定价Dumping 倾销Collusive Pricing 共谋定价,Pricing and Business,How companies price a product or service ultimately depends on the demand and supply for itThree influences on demand&supply:Customers influence price through their effect on the demand for a product or service,based on factors such as quality
3、 and product featuresCompetitors influence price through their pricing schemes,product features,and production volumeCosts influence prices because they affect supply(Managers who understand the cost of producing their companies products set prices that make the products attractive to customers whil
4、e maximizing their companies operating incomes.),Time Horizons and Pricing,Short-run pricing decisions have a time horizon of less than one year and include decisions such as:Pricing a one-time-only special order with no long-run implicationsAdjusting product mix and output volume in a competitive m
5、arketLong-run pricing decisions have a time horizon of one year or longer and include decisions such as:Pricing a product in a major market where there is some leeway in setting price,Differences Affecting Pricing:Long Run vs.Short Run,Costs that are often irrelevant for short-run policy decisions,s
6、uch as fixed costs that cannot be changed,are generally relevant in the long run because costs can be altered in the long runProfit margins in long-run pricing decisions are often set to earn a reasonable return on investment prices are decreased when demand is weak and increased when demand is stro
7、ng,Costing and Pricing for the Short Run,Astel manufactures two brands of personal computers-Deskpoint and Provalue.Datatech corporation has asked Astel to bid on supplying 5,000 provalue computers over the last three months of 2008.after this three-month period,Datatech is unlikely to place any fut
8、ures sales order with Astel.Datatech will sell Provalue computers under its own brand name in regions and markets where Astel does not sell Provalue.Whether Astel accepts or rejects this order will not affect Astels revenue.Before Astel can bid on Datatechs offer,Astels managers must estimate how mu
9、ch it will cost to supply the 5,000 computers.,What price should Astels managers bid for the 5,000 computers order?,Strategic and Other Factors in Short-Run Pricing,If the Astel experience strong demand for their products or have limited capacity,companies strategically increase prices in the short
10、run as much as the market will bear.If the Astels short-run pricing decision it had extra capacity and faced competition,so its focus was on identifying a sufficiently low price at which Astel would still make a profit.(for example:Astel believes that competing bids will be between$596 and$610 per c
11、omputer.),Lets return to the Astel example.However,this time we consider the long-run pricing decision for Provalue.Astel has no beginning and ending inventory of Provalue in 2009 and manufactures and sells 150,000 units during the year.Astel has three manufacturing overhead cost pools-ordering and
12、receiving components,testing and inspection of final products,and rework(correcting and fixing errors and defects)in its accounting system.,Calculating Product Costs for Long-Run Pricing Decisions,ABC Manufacturing Cost Illustration,Product Profitability Using ABC Costing:Illustration,Alternative Lo
13、ng-Run Pricing Approaches,How do companies use product cost information to make long-run pricing decisions?Two different approaches for pricing decisions are:1.Market-based-Given what our customers want and how our competitors will react to what we do,what price should we charge?2.Cost-based,which i
14、s also called cost-plus-Given what it costs us to make this product,what price should we charge that will recoup our costs and achieve a target return on investment?,Markets and Pricing,Competitive Markets-（steel,oil,and natural gas）use the market-based approach.the items produced or services provid
15、ed by one company are very similar to items produced or services provided by others.Companies in these markets must accept the prices set by the market.Less-Competitive Markets(automobiles,computers,and consulting services)can use either the market-based or cost-based approach-Both approaches consid
16、er customers,competitors,and costs,only their starting points differ.Some companies first look at costs because cost information is more easily available and then consider customers or competitors-the cost based approach.Others start by considering customers and competitors and then look at costs-th
17、e market based approach.Non-Competitive Markets use cost-based approaches,Market-Based Approach,Starts with a target priceTarget Price estimated price for a product or service that potential customers will payEstimated on customers perceived value for a product or service and how competitors will pr
18、ice competing products or servicesUnderstanding customers and competitors is important because:Competition from lower cost producers has meant that prices cannot be increasedProducts are on the market for shorter periods of time,leaving less time and opportunity to recover from pricing mistakesCusto
19、mers have become more knowledgeable and demand quality products at reasonable prices,Five Steps in Developing Target Prices and Target Costs,Develop a product that satisfies the needs of potential customersChoose a target priceDerive a target cost per unit:Target Price per unit minus Target Operatin
20、g Income per unitPerform cost analysisPerform value engineering to achieve target costExample P461,Value Engineering,Value Engineering is a systematic evaluation of all aspects of the value-chain,with the objective of reducing costs while improving quality and satisfying customer needsManagers must
21、distinguish value-added activities and costs from non-value-added activities and costsValue-Added Costs增值成本 a cost that,if eliminated,would reduce the actual or perceived value or utility(usefulness)customers obtain from using the product or serviceNon-Value-Added Costs a cost that,if eliminated,wou
22、ld not reduce the actual or perceived value or utility customers obtain from using the product or service.It is a cost the customer is unwilling to pay for,Value Engineering Terminology,Some costs,such as supervision and production control,fall in a gray area because they include mostly value-added
23、but also some nonvalue-added aspects.Despite these troublesome gray area,attempt to distinguish costs provide a useful overall framework for value engineering.Cost Incurrence describes when a resource is consumed(or benefit foregone)to meet a specific objectiveLocked-in Costs(Designed-in Costs)are c
24、osts that have not yet been incurred but,based on decisions that have already been made,will be incurred in the futureAre a key to managing costs well,Cost Incurrence and Locked-In Costs Graph,Value-Chain Analysis and Cross-Functional Teams,To help reduce costs and achieve a quality level their cust
25、omers want,the company organizes a cross-functional value-engineering team consisting of marketing managers,product managers,manufacturing engineers,purchasing managers,suppliers,and management accounts.The team modifies Provalues design to reduce costs while retaining features that customers value.
26、Here are some of teams idea:1.improve operating efficiency and productivity;2.use a simpler,more-reliable motherboard without complex features;3.simplify the Provalue design and use fewer components to decrease ordering and receiving costs and also decrease testing and inspection costs.,Target Costi
27、ng Illustration,Target Costing Illustration,Problems with Value Engineering and Target Costing,Unless managed properly,value engineering and target costing can have undesirable effects:Employees may feel frustrated if they fail to attain targetsA cross-functional team may add too many feature just t
28、o accommodate the wishes of team membersA product may be in development for along time as alternative designs are repeatedly evaluatedOrganizational conflicts may develop as the burden of cutting costs falls unequally on different business functions in the firms value chain,Short-run pricing,capacit
29、y constraints Vermont Hills Dairy,maker of specialty cheeses,produces a soft cheese from the milk of Holstein cows raised on a special corn-based diet.One kilogram of soft cheese,which has a contribution margin of$8,requires 4 liters of milk.A well-known gourmet restaurant has asked Vermont Hills to
30、 produce 2,000 kilograms of a hard cheese from the same milk of Holstein cows.The dairy has sufficient unused capacity.Elise Princiotti,owner of Vermont Hills,calculates the costs of making one kilogram of the desired hard cheese:Milk(10 liters$1.50 per liter)$15 Direct manufacturing labor 5 Variabl
31、e manufacturing overhead 3 Fixed manufacturing cost allocated 6 Total manufacturing cost$29,1.Suppose Vermont Hills can acquire all the Holstein milk that it needs.What is the minimum price per kilogram it should charge for the hard cheese?2.Now suppose that the Holstein milk is in short supply.Ever
32、y kilogram of hard cheese produced by Vermont Hills will reduce the quantity of soft cheese that it can make and sell.What is the minimum price per kilogram it should charge to produce the hard cheese?,1.If Vermont Hills can get all the Holstein milk it needs,and has sufficient production capacity,t
33、hen,the minimum price per kilo it should charge for the hard cheese is the variable cost per kilo=$15+5+3=$23 per kilo.2.Vermont should not agree to produce any hard cheese unless the buyer is willing to pay at least$43 per kilo.If milk is in short supply,then each kilo of hard cheese displaces 2.5
34、kilos of soft cheese(10 liters of milk per kilo of hard cheese versus 4 liters of milk per kilo of soft cheese).For the hard cheese,the minimum price Vermont should charge is the variable cost per kilo of hard cheese plus the contribution margin from 2.5 kilos of soft cheese,or,$23+(2.5$8 per kilo)=
35、$43 per kilo,Cost-Based(Cost-Plus)Pricing,The general formula adds a markup component to the cost base to determine a prospective selling priceUsually only a starting point in the price-setting processMarkup is somewhat flexible,based partially on customers and competitorsSetting a Target Rate of Re
36、turn on Investment:the Target Annual Operating Income that an organization aims to achieve,divided by Invested CapitalDo not confuse the target rate of return on investment with the markup percentageCompanies usually first calculate target rate of return on investment and then determines markup perc
37、entage.,Forms of Cost-Plus Pricing,Selecting different cost bases for the“cost-plus”calculationVariable Manufacturing CostVariable CostManufacturing CostFull Cost-Most firms use full cost for their cost-based pricing decisions,because:Allows for full recovery of all costs of the product Allows for p
38、rice stability It is a simple approachCost bases that include fewer costs have a higher markup percentage to compensate for the cost excluded from the base,the markkup percentage also depends on the extent of competition in the marketplace.,Life-Cycle Product Budgeting and Costing,Product Life-Cycle
39、 spans the time from initial R&D on a product to when customer service and support are no long offered on that productLife-Cycle Budgeting involves estimating the revenues and individual value-chain costs attributable to each product from its initial R&D to its final customer service and supportLife
40、-Cycle Costing tracks and accumulates individual value-chain costs attributable to each product from its initial R&D to its final customer service and support,Insight,Inc.,a computer software company,which is developing a new accounting package,“General Ledger”.Assume the following budgeted amounts
41、for General Ledger over a six year product life cycle:,Important Considerations for Life-Cycle Budgeting,Nonproduction costs are largeDevelopment period for R&D and design is long and costlyMany costs are locked in at the R&D and design stages,even if R&D and design costs are themselves small,Other
42、Important Considerations in Pricing Decisions,Price Discrimination the practice of charging different customers different prices for the same product or servicePeak-Load Pricing the practice of charging a higher price for the same product or service when the demand for it approaches the physical lim
43、it of the capacity to product that product or service,The Legal Dimension of Price Setting,Price Discrimination is illegal if the intent is to lessen or prevent competition for customersPredatory Pricing deliberately lowering prices below costs in an effort to drive competitors out of the market and
44、 restrict supply,and then raising pricesDumping a non-US firm sells a product in the US at a price below the market value in the country where it is produced,and this lower price materially injures or threatens to materially injure an industry in the USCollusive Pricing occurs when companies in an industry conspire in their pricing and production decisions to achieve a price above the competitive price and so restrain trade,
