AF 211 CH 5
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What information is relevant?
depends on the decision being made
is essentially choosing among several courses of action
To determine whether information is relevant, accountants should use 2 criteria:
- 1. Information must be an expected revenue or cost and
- 2. It must have an element of difference among the alternatives
the predicted future costs and revenues that will differ among the alternatives
any method used for making a choice, sometimes requiring elaborate quantitative procedures
A decision model may also be ...
In the best of all possible worlds, information used for decision making would be perfectly ... and ...
The degree to which information is relevant or precise often depends on the degree to which it is. 2 measures:
Qualitative and Quantitative
costs that will not continue if an ongoing operation is changed or deleted
costs that continue even if an operation is halted
A limiting factor/scare resource ... the production or sale of a product or service
- 1. Setting the price of a new or refined product
- 2. Setting the price of productd sold under private labels
- 3. Responding to a new price of a competitior
- 4. Pricing bids in both sealed and open bidding situation
all competing firms sell the same type of product at the same price
the additional cost resulting from producing and selling one additional unit
the additional revenue resulting from sale of one additional unit
the price a firm charges for a unit will influence the quantity of units it sells
the effect of price changes on sales volume
Accountants seldom compute ... curves and ... curves
marginal revenue, marginal cost
Accountants use estimates based on ...
Accountants examine ... not the range of ...
selected volumes, possible volumes
2 types of pricing:
predatory pricing and discriminatory pricing
setting prices by computing an average cost and adding a markup
... can be based on a host of different markups that are in turn based on a host of different definitions of cost
Target Sales price as ... (4)
- 1. a percentage of variable manufacturing costs
- 2. a percentage of total variable costs
- 3. a percentage of full costs (Vc + Fc)
- 4. a percentage of total manufacturing cost
The contribution margin approach offers ...
more detailed information
The contribution margin approach allows managers to prepare ...
price scheduels at different volume levels
Target pricing with full costing presumes a giving ...
Advantages of Total Manufacturing and Full-Cost Approaches (7)
- 1. In the long run, a firm must recover all costs to stay in business
- 2. It may indicate what competitors might charge
- 3. It meets the cost-benefit test
- 4. It copes with uncertainty
- 5. It tends to promote price stability
- 6. It provides the most defensible basis for justifying price to all interest parties
- 7. It simplifies pricing decisions
Target costing sets a cost ... before product is created pr even designed
a cost reduction technique, used primarily during design
the Japanese word for continous improvement
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