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Target Cost –Price Determined by Market Target Selling Price- Cost Plus Pricing Time and Material Pricing Transfer Pricing *Negotiated *Cost-based *Market-based Transferring Between Divisions Next Slide Previous Slide End Show Pricing Decisions Few management decisions are more important than setting prices.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Managerial AccountingSecond EditionWeygandt / Kieso / Kimmel
ELS
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Pricing Decisions
Few management decisions are more important than setting prices.
Illustration 11-1
Pricing Factors
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
How Are Most Prices Set?By the competitive market!In other words…Supply and Demand
Used mainly for products that aren’t easily
differentiated from competitive products
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
When Can A Company Set the Price?
How Are Most Prices Set? When the product is specially made
for a customer When there are limited producers of
similar items Patented items Copyrighted works
When a company can differentiate its product -
STARBUCKS
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Target CostThe cost that will provide the desired
profit on a product when the seller does not have control over the product’s price.
Competitive Market Pricing
Price Set by Market $XXXLess:Desired Profit XXTarget Cost $ XX
Illustration 11-2
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
After Target Cost Is Determined…A team of employees with expertise in:
Production Operations Marketing Finance
Assembles to: Design and develop a product with
quality specifications While not exceeding costs
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Target Cost Includes All:
Competitive Market Pricing
Price Set by Market $XXXLess:Desired Profit XXTarget Cost $ XX
• PRODUCT COSTS– Direct Material– Direct Labor– Manufacturing Overhead
• PERIOD COSTS– Selling– Administrative
necessary to: • MAKE and • MARKET the product.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Target Selling PriceThe selling price that will provide
the desired profit on a product when the seller has the ability to determine the product’s price.
Illustration 11-3
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Target Selling PriceThe selling price that will provide
the desired profit on a product when the seller has the ability to determine the product’s price.
Illustration 11-3
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Cost-Plus PricingAdvantage: Easy to computeDisadvantages: Doesn’t consider demand
(Will the customer pay the price?)
Fixed cost per unit changes with change in volume
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Markup
The percentage applied to a product’s cost to determine the product’s selling price.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Time and Material Pricing
An approach to cost-plus pricing in which the company uses two pricing rates:
• One for the labor used on a job
• One for the material.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Time and Material PricingUsed in service industries:Public accounting firmsLaw firmsEngineering, consulting firmConstruction companiesRepair shopsPrinters
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Material Loading Charge
A charge added to cover the cost of :
PurchasingReceiving Handling Storing Materials, plus any desired profit
margin on the materials themselves.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Internal Sales -
How do you price goods when they are “sold” within the company?
Companies often expand in direction of its suppliers or customers.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Transfer Price
The price used to record the transfer between two divisions of a company.
Illustration 11-15
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Transfer Price Approaches
• Negotiated transfer prices• Cost-based transfer prices• Market-based transfer prices
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Negotiated Transfer Price
A transfer price that is determined by the agreement of the division managers when no external market price is available.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Review – Opportunity Cost
The potential benefit that may be obtained from following an alternate course of action.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Negotiated Transfer Price
No Excess Capacity:Minimum Transfer Price
Illustration 11-17
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Negotiated Transfer Price
No Excess Capacity:
Illustration 11-17
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Negotiated Transfer Price
Excess Capacity:Minimum Transfer Price
Illustration 11-19
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Negotiated Transfer Price
Excess Capacity:
Illustration 11-20
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Cost-Based Transfer Price
A transfer price that uses as its foundation the costs incurred by the division producing the goods.
Bad deal for division that is transferring.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Cost-Based Transfer PriceIllustration 11-23
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Market-Based Transfer Price
A transfer price that is based on existing market prices of competing products.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Outsourcing
Contracting with an external party to provide a good or service, rather than performing the work internally.
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
Transfer Between Divisions in Different Countries
Causes BIG tax problems-
Let the CPAs handle it!
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Target Cost –Price Determined by Market
Target Selling Price- Cost Plus Pricing
Time and Material Pricing
Transfer Pricing *Negotiated *Cost-based *Market-based
Transferring Between Divisions
NextSlide
PreviousSlide
EndEndShowShow
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