value from pricing

Question 1

pricing is where marketing and accounting join forces to

Answer 1

• incentivise customers to buy
• cover costs and create profit

Question 2

pricing objectives

Answer 2

• revenue and profit
• operations; generate demand and use capacity
• patronage; encourage use
• non-monetary eg fair and equitable access, express core values

Question 3

pricing tripod must balance

Answer 3

• value (and perceived) to customers
• cost of providing product
• pricing of competitors

Question 4

pricing tripod determines

Answer 4

viable price range available to organisation

Question 5

price ceiling

Answer 5

perceived value; customers will not pay more for a product than they think it’s worth

Question 6

price floor

Answer 6

total cost of providing product; below that, organisation makes a loss

Question 7

value pricing

Answer 7

basing price of products on value to chosen customers

Question 8

value orientation

Answer 8

organisation’s focus firmly on value created for customers, and the process of capturing this value

Question 9

true economic value

Answer 9

• cost of next best alternative + value of the performance differential
• value fully informed customer would ascribe to product and willing to pay

Question 10

perceived value

Answer 10

• governs what customers are actually willing to pay
• lower than true economic value because customers not aware of all product benefits

Question 11

marketing tries to…

Answer 11

• understand and shift what customers think a product is worth
• transform an uninformed customer (with low perceived value) into fully informed customer, shifting perceived value up towards true economic value

Question 12

competition-based pricing

Answer 12

• monitoring competitors’ prices and acting accordingly
• shapes where in the viable price range between price floor (COGS) and price ceiling (perceived value) an organisation sets its price

Question 13

competition intensifiers

Answer 13

increased competition and substitutes reduces upward pressure on prices

Question 14

competition inhibitors

Answer 14

high switching costs and time/ location specificity drives prices up

Question 15

cost per management accounting

Answer 15

• resources (in monetary terms given up to achieve a particular objective
• cost with future benefit = asset
• asset benefit consumed = expensed

Question 16

cost behaviour

Answer 16

relationship with cost and level of organisation’s activity

Question 17

cost behaviour helps

Answer 17

• predict costs; forecasting, budgeting, planning, CVP analysis
• manage costs; ensure they reflect value creation and increase profitability

Question 18

to understand cost behaviour:

Answer 18

• cost driver; activity/factors that drive/cause costs
• cost object; item that management wants a separate measure of cost

Question 19

cost behaviour patterns

Answer 19

• variable; changes proportionately with activity level
• fixed; does not vary with changes to activity level
• mixed; combination of fixed and variable

Question 20

cost-volume-profit analysis helps managers determine

Answer 20

• changes in profit in response to changes in sale volumes, costs, and prices
• sales quantity required to break even and start creating value/profit

Question 21

breakeven point

Answer 21

• sales quantity or revenue needed to cover costs
• no profit or loss

Question 22

operational risk

Answer 22

risk of loss resulting from inadequate or failed internal processes, people and systems, or external events

Question 23

margin of safety

Answer 23

expected future sales (in either revenue or units) above the breakeven point

Question 24

value analysis

Answer 24

• identifies value adding and non-value adding activities/costs
• improves value of products by minimising non-value adding activities/costs

Question 25

customer perspective of value-adding activities

Answer 25

• moves product step closer to completion
• produces change of state not achievable by preceding activities

Question 26

organisation perspective of value-adding activities

Answer 26

essential to the functioning of the business