Accounting Foundations: Cost-Based Pricing Strategies

Learn how to calculate accurate costs and price products to maximize profitability.

Introduction

• Protecting profits with accurate pricing

1. Cost-Based Pricing vs. Supply and Demand

• The Stice custom-made oak table
• Use of costs in pricing customized products
• Cost-plus contracts: Examples of government contracts
• Cost-plus pricing case: Dugway Printing

2. Difficulty in Defining "Cost"

• Description of Export Clothing Company
• What is the "cost" to make one shirt?
• Is $3.20 per shirt a good selling price?

3. Pricing Implications of Fixed Costs and Variable Costs

• Do stores really sell things at a loss?
• The clever bundling of the Big Mac meal
• Russian restaurant analysis: Breakeven vs. market demand
• Pricing in a fixed-cost setting

4. Short-term and Long-Term Pricing

• Pricing a special order at the print shop
• Evaluating price when there is a production constraint
• Long-term, normal pricing: The case of the projectors

5. Transfer Pricing

• What is transfer pricing and why is it important?
• Case study: Introduction to the transfer pricing controversy
• Case study: What would the owners prefer?
• What do the decision-makers prefer?
• Can transfer pricing solve this conflict?

6. Pricing and Overhead Costs

• Which airline passengers create overhead costs?
• Right-handed airplanes and left-handed airplanes
• The potential consequences of poor overhead assignment

Conclusion

• Pricing, strategy, and KPIs