Cost Analysis for Decision Making Flashcards
Sunk Costs
costs incurred in the past that cannot be changed by present or future decisions
target price
this is based off of supply and demand
Target cost
equals target price minus desired profit margin
predatory pricing
setting price below cost with the intent to drive competitors out of business
Dumping
Exporting a product to another country at a price below domestic price.
Can effect economy.
Price discrimination
Selling identical goods to different customers at different prices.
Market segmentation: e.g. Movie theater sells tickets at different prices to different people.
Airplanes sell different tickets at different prices on same flight.
If on basis of a protected class, that is illegal.
Peak-Load Pricing
Practice of setting prices highest when the quantity demanded for the product approaches capacity.
Ex: warm weather geographic locations, the electricity rates are higher during the afternoon (peak heat)
Price Fixing
Agreement among business competitors to set prices at a particular level.
OPEC
Bottleneck
The work required limits production.
Throughput Contribution
Sales dollars - Direct materials cost and other variable costs
Theory of Constraints
In the face of constraints, the optimal product mix is that which maximizes contribution margin per unit of constraining resources
Focuses on increasing the excess of differential revenue over differential costs when faced with bottlenecks.
Focuses on rate of throughput contribution, minimizing investments (inventories, equipment, buildings, and other assets to generate throughput contribution), and minimizing other operating costs.
Vertical Integration
less dependent on suppliers, making things in-house
