Ch 9 Powerpoint Flashcards
How to do target costing
Market Price-Desired Profit = Target cost
why is target costing different than regular costing?
usually its price = cost + PM
now it is
Market Price - Desired Profit = Cost
setting cost based on market factors (price taker)
target costing notes
- cost is residual after price and PM
- cost control is key to success
Traditional costing!
- firm is a price maker
- price is set by firm and not market
- price is residual! in formula
price takers accept the price set by msupply and demand
when does. acompany set the price?
one of a kind products and people cant price copetitios
Target cost plus pricing when to use
use when little or no competition!
price is a function of product cost and target ROI
Formula for target cost plus pricing
markup is based on desired operating income/ROI!!
Cost + Markup(Cost)= Target Selling
How to calculate the markup
Method 1: get the % of total investment you want the markup to be; divide it by number of units; once you have per unit markup just add it to the costs
Method 2: (desired ROI per unit/Total Unit Cost) = markup %
Cost + (Cost)(Markup)
for target cost plus prciicng YOU USE ALL COSTS!!! fixed and vbl and selling
Absorption cost plus pricing
cost base includes only mfc costs (fixed and vbl)
markup must cover selling and admin costs plus target roi
