Professional Documents
Culture Documents
Pricing Products and Services: Appendix A
Pricing Products and Services: Appendix A
and Services
Appendix A
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-2
Learning Objective 1
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-3
Change
Change
in
versus in Unit
Price
Sales
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-4
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-5
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-6
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-7
d =
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-8
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-9
McGrawHill/Irwin
d =
d =
ln(1 + (-0.15))
ln(1 + (0.10))
d =
ln(0.85)
= -1.71
ln(1.10)
Copyright2008,TheMcGrawHillCompanies,Inc.
A-10
McGrawHill/Irwin
d =
d =
ln(1 + (-0.20))
ln(1 + (0.10))
d =
ln(0.80)
= -2.34
ln(1.10)
Copyright2008,TheMcGrawHillCompanies,Inc.
A-11
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-12
-1
1 + d
1+
-1
1 + d
A-13
McGrawHill/Irwin
-1.71
-1.71 +1
- 1 = 1.41 or 141%
Copyright2008,TheMcGrawHillCompanies,Inc.
A-14
McGrawHill/Irwin
-2.34
-2.34 +1
- 1 = 0.75 or 75%
Copyright2008,TheMcGrawHillCompanies,Inc.
A-15
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-16
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-17
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-18
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-19
Learning Objective 2
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-20
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-21
Copyright2008,TheMcGrawHillCompanies,Inc.
A-22
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-23
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-24
Markup %
on absorption
cost
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-25
Let
Lets
s assume
assume that
that Ritter
Ritter must
must invest
invest $100,000
$100,000 in
in the
the
product
product and
and market
market 10,000
10,000 units
units of
of product
product each
each
year.
year. The
The company
company requires
requires aa 20
20 percent
percent ROI
ROI on
on all
all
investments.
investments. Lets
Lets determine
determine Ritters
Ritters markup
markup
percentage
percentage on
on absorption
absorption cost.
cost.
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-26
Markup %
(20% $100,000) + ($2 10,000 + $60,000)
on absorption =
10,000 $20
cost
Variable SG&A per unit
Total fixed SG&A
Markup %
on absorption
cost
McGrawHill/Irwin
($20,000 + $80,000)
$200,000
50%
Copyright2008,TheMcGrawHillCompanies,Inc.
A-27
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-28
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-29
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-30
Learning Objective 3
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-31
Target Costing
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-32
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-33
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-34
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-35
Target Costing
Handy
Handy Appliance
Appliance feels
feels there
there is
is aa niche
niche for
for aa
hand
hand mixer
mixer with
with certain
certain features.
features. The
The
Marketing
Marketing Department
Department believes
believes that
that aa price
price of
of
$30
$30 would
would be
be about
about right
right and
and that
that about
about
40,000
40,000 mixers
mixers could
could be
be sold.
sold. An
An investment
investment of
of
$2,000,000
$2,000,000 is
is required
required to
to gear
gear up
up for
for
production.
production. The
The company
company requires
requires aa 15
15
percent
percent ROI
ROI on
on invested
invested funds.
funds.
Let
Let see
see how
how we
we determine
determine the
the target
target cost.
cost.
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-36
Target Costing
McGrawHill/Irwin
Copyright2008,TheMcGrawHillCompanies,Inc.
A-37
McGrawHill/Irwin
End of Appendix A
Copyright2008,TheMcGrawHillCompanies,Inc.