chapter 6 Flashcards
how to find desired ROI
you take the ROI percentage you want from the total cost
how to find the target selling price for the desired ROI
do the desired ROI calculation and then subtract the answer from total cost per unit (i tihink probably divide the answer by number of units before subtracting)
what is the lowest price a company at full capacity accept
the price that they sell to external customers
what is the major benefit of budgeting
it is a early warning system
what is the target cost
cost that provides the desired profit on a product when the seller doesnt have control over the products price
how to find the target cost
market price - desired profit = target cost
what is cost plus pricing
when they can set there own price due to little to no competition
how to find cost plus pricing target selling price
cost + (markup percentage x cost) = target selling price
what is a keystone markup
100% markup on the cost (buy for 50 sell for 100)
what is absorption cost plus pricing
this method is consitant with GAAP because it defines the cost base as the manufcturing cost and includes MOH. and the variable and fixed cost are excluded from the cost base
price services pricing
this approach uses two pricing rates one for the labour and one for the material
how to find the minimum transfer price
variable cost + opportunity cost = minimum tranfer price
what is transfer pricing
its setting the prices for transactions between entities within the same company
what should always be the goal for transfer pricing
to maximize earnings
what are some advantages to cost based transfer prices
easy to understand
useful when market info isnt avaliable
what are some disadvantages to cost based transfer prices
doesnt reflect the true profitability
doesnt provide a incentive to control costs
what is market based transfer prices
based on the actual market prices
transfers between divisions in different countries
around 60% of trade between counties is this and this happens because mostly to avoid tax’s in certain counties
how to calculate material loading charge rate
you add up all the material costs but the actual thing that you are selling and then divide it by the cost of the main thing and get a percentage and add any mark up then
how to find the labour rate
add up all the time charges and then divide by total number of hours and then add any markup after this
