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Chapter 8 Accounting
| Question | Answer |
|---|---|
| Target Costing | The cost that will provide the desired profit on a product when the seller does not have control over the product's price |
| Formula for Target Cost | Market Price - Desired Profit |
| The minimum rate of return | Company's desired profit |
| Steps for Target Cost | 1. Chooses the segment of the market it wants to compete in- that is, its market niche 2. Conducts market research 3. Determines its target cost by setting a desired profit 4. Assembles of team of employees |
| Cost- plus pricing | A process whereby a product's selling price is determined by adding a markup to a cost base |
| target selling price | A company first determines a cost base and then adds a markup to the cost base to determine |
| Formula of Target Selling Price | Cost + Markup = |
| Formula for Markup ( Desired ROI per Unit) | Desired ROI Percentage X Amount Invested -------------------------------- Units Produced |
| Formula for Mark up Percentage | Markup (Desired ROI per Unit) ----------------------------------- Total Unit Cost |
| Formula for Target Selling Price | Total Unit Cost + (Total Unit Cost X Markup Percentage) = Target Selling Price |
| Variable-cost PRicing | An approach to pricing that defines the cost base as all variable costs; it excludes both fixed manufacturing and fixed selling and adminstrative costs |
| Full-cost pricing | An approach to pricing that defines the cost base as all costs incrurred. |
| Variable-cost pricing | helpful in pricing special orders or when excess capacity exists |
| Transfer Price | The price used to record the transfer of goods between two divisions of a company |
| Negotiated transfer price | is determined through agreement of division managers. |
| Formula for Minimum Transfer Price | Variable Cost + Opportunity Cost = Minimum Transfer Price |
| Variable cost is defined | As the variable cost of units sold internally |
| Cost- based transfer PRices | is based on the costs incurred by the divisionproducing the goods or services |
| Market-based transder price | is based on existing market prices of competing goods or services |
| Price Taker | Where products are not easily differented from competitior goods, prices are not set by the company, but rather by the laws of supply and demand |
| Objectives of Transfer Pricing | the objective is to maximize the return to the company An additional objective of transfer pricing is to measure divisional performance accurately |
| 3 Approaches to Transfer Price: | 1. Negotiated Transder prices 2. Cost-BAsed transfer prices 3. market-based transfer prices |
| Which one is the best Transfer Price? | Negotiated transfer PRices |
| Negotiated transfer Price | A transfer price is determined through agreement of division managers |
| IF there is NO excess capacity, the minimum transfer price will be | Variable Cost + Opportunity Cost= Minimum Transfer Price |
| If there is Excess capacity, the minimum transfer price will be | Variable Cost = Minimum Transfer Price |
Created by:
JackyThrows
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