Ch08

Managerial Accounting: Tools for Business Decision-Making Canadian Edition Weygandt ● Kieso ● Kimmel ● Aly

[object Object],[object Object],[object Object],Chapter 8 Pricing Study Objectives

[object Object],[object Object],[object Object],[object Object]

External Sales ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Pricing Objectives Demand Environment ,[object Object],[object Object],[object Object],[object Object],Cost Considerations ,[object Object],[object Object],What Prices Should Be Charged?

External Sales (Continued) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Target Costing ,[object Object],[object Object],[object Object],Market Price - Desired Profit = Target Cost

Target Costing Steps ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Cost-Plus Pricing ,[object Object],[object Object],[object Object],[object Object],[object Object],Cost + (Mark-up % x Cost) = Target Selling Price Cost + (Mark-up % x Cost) = Target Selling Price

Cost-Plus Pricing Example Cleanmore Products, manufactures of wet/dry shop vacuums has following Cost data at budgeted sales volume of 10,000 Units. Cleanmore has decided to price its new shop vacuum to earn a 20-percent return on its investment (ROI) of $1 million.

Cost-Plus Pricing Example (Continued) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Cost-Plus Pricing Limitations ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Variable Cost Pricing ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Let’s Review ,[object Object],[object Object],[object Object],[object Object],[object Object]

Let’s Review: Solution ,[object Object],[object Object],[object Object],[object Object],[object Object]

Time and Material Pricing ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Time and Material Pricing Example Time Charges Material Loading Charges¹ Mechanics’ wages and benefits $103,500 $ 0 Parts manager’s salary and benefits 0 11,500 Office employee’s salary and benefits 20,700 2,300 Other overhead (supplies, amortization, property taxes, advertising, utilities) 26,800 14,400 Total budgeted costs $151,000 $28,200 ¹ The invoice cost of the materials is not included in the material loading charges. LAKE HOLIDAY MARINA Budgeted Costs for the Year 2005

Time and Material Pricing Example (Continued) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Time and Material Pricing ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Time and Material Pricing Example (Continued) ,[object Object],[object Object],[object Object],[object Object],Desired profit margin on materials Estimated costs of parts/materials + ,[object Object]

Time and Material Pricing ,[object Object],Material Total Invoice Material Loading ÷ Costs Parts = Loading Per Hour Charges and Material Percentage Overhead costs Parts manager’s salary and benefits $11,500 Office employee’s salary 2,300 13,800 ÷ $120,000 = 11.50% Other overhead 4,400 ÷ 120,000 = 12.00% $28,200 ÷ 120,000 = 23.50% Profit margin 20.00% Material loading percentage 43.50%

Time and Material Pricing Example (Continued) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Time and Material Pricing Example (Continued) ,[object Object],[object Object],[object Object]

Internal Sales ,[object Object],[object Object],How do you price goods when they are “sold” within the company?

Internal Sales ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Negotiated Transfer Price Example: Alberta Company ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Negotiated Transfer Price Example: Alberta Company (Continued) ,[object Object],[object Object],[object Object]

Negotiated Transfer Price Example: Alberta Company (Continued) ,[object Object],[object Object],[object Object],[object Object],[object Object],Maximum Boot Division will pay what the sole would cost from an outside buyer

Negotiated Transfer Price Example: Alberta Company (Continued) ,[object Object],[object Object],[object Object],[object Object],[object Object],Negotiate a transfer price between $11 (minimum acceptable to Sole) and $17 (maximum acceptable to Boot)

Negotiated Transfer Price Variable Costs ,[object Object],[object Object],[object Object]

Negotiated Transfer Price Summary ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Cost-Based Transfer Prices ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Cost-Based Transfer Prices Example: Alberta Company ,[object Object],[object Object],[object Object]

Cost-Based Transfer Prices Example: Alberta Company (Continued) ,[object Object],[object Object],[object Object],[object Object],[object Object]

Cost-Based Transfer Prices Summary ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Market-Based Transfer Prices ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Effect of Outsourcing on Transfer Prices ,[object Object],[object Object],[object Object],[object Object]

Transfers between Divisions in Different Countries ,[object Object],[object Object],[object Object]

Transfers between Divisions in Different Countries Example: Alberta Company ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Transfers between Divisions in Different Countries Example: Alberta Company (Continued)

Copyright © 2006 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein. Copyright

Ch08

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