Week 10

Question 1

How to determine prices (3C’s)

Answer 1

-Competition (if there’s a lot of similar product - you should ask lower)
-Customers (low demand - ask lower)
-Costs

Question 2

Market-driven approach

Answer 2

Price-taker. Can we deliver given what customers are willing to pay for our product

Question 3

Value-engineering in target costing

Answer 3

evaluating all aspects of the target product to reduce costs while satisfying customer needs (eliminate non-valuable costs)

Question 4

Cost-driven approach in target costing

Answer 4

Given costs, what price/profit do we taraget

Question 5

Death spiral meaning

Answer 5

If price is too high, sales is lower, thus you set even higher price because fixed costs are not covered by the smaller sales….

Prices too high > higher sales than expected > company gets sucked into the market

Question 6

Transfer prices (TP) meaning

Answer 6

Amount charged by one segment of an organization for a product or service thay it supplies to another segment of the same organization [Dept 1 profit is only from oranges profits -costs, while dept 2 profit is from orange juice - costs]

Question 7

Finding maximum profit sales of centralized firm

Answer 7

Take the derivative of (Price - Cost) function equal to 0. solving x

Question 8

Finding maximum profit sales of DEcentralized firm (No TP)

Answer 8

Take the derivative of Sales and equal to 0. Solve x

Question 9

Finding maximum profit sales of DEcentralized firm WITH Transfer prices (TP)

Answer 9

Take derivative of sales - TP*Q = 0. Take the Centralized profit x. Put it in equation. Solve TP

Question 10

Transfer price != x meaning

Answer 10

TP > X Sales dept would not buy internally (x= mc)
TP < X Production dept would not sell internally

Question 11

Calculating Transfer Prices (TP) methods

Answer 11

Cost-based approach - (TP in relation to (some kind of) costs)
Market-based approach -
Negotiation-based approach - (TP determined by negotiation. Time consuming)