Management Accounting Ch08
Quizzes and Glossary
Quizzes and Glossary
Set of flashcards Details
| Flashcards | 29 |
|---|---|
| Language | English |
| Category | Finance |
| Level | University |
| Created / Updated | 05.06.2021 / 03.02.2023 |
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Once a company has determined the target price, it can determine its target cost by setting a desired profit.
In a competitive, common-product environment the company must set a target selling price using cost-plus pricing.
Under cost-plus pricing, the markup percentage is computed by dividing desired ROI per unit by variable cost per unit.
The labor charge includes the direct labor cost of employees, selling, administrative, and similar overhead costs; and an allowance for a desired profit per hour.
The charges for any particular job are the sum of the labor charge, the materials charge, and the material loading charge.
An appropriate transfer price should assist the company in making proper purchasing decisions.
An advantage of the cost-based transfer price approach is that it can increase a division manager’s control over the division’s performance.
The market-based transfer price approach provides a fairer allocation of the company’s contribution margin to each division than the cost-based approach.
In order to maximize income, and minimize income tax, companies can adjust the transfer prices they use on transfers between divisions located in different countries.
Absorption cost pricing is more consistent with cost-volume-profit analysis used to measure the profit implications of changes in price and volume.
The target cost of a product
In the cost-plus pricing approach, the markup percentage is computed by dividing the
All of the following are steps in the time-and-material pricing approach except calculating the
The total contribution margin to a company in the market-based transfer price approach is
Absorption-cost pricing
Absorption-cost pricing
An approach to pricing that defines cost base as the manufacturing cost; it excludes both variable and fixed selling and administrative costs.
Cost-based transfer price
A transfer price that uses as its foundation the costs incurred by the division producing the goods.
Cost-plus pricing
A process whereby a product's selling price is determined by adding a markup to a cost base.
Full-cost pricing
An approach to pricing that defines the cost base as all costs incurred.
Market-based transfer price
A transfer price that is based on existing market prices of competing products.
Markup
The amount added to a product's cost base to determine the product's selling price.
Material loading charge
A charge added to cover the cost of purchasing, receiving, handling, and storing materials, plus any desired profit margin on the materials themselves.
Negotiated transfer price
A transfer price that is determined by the agreement of the division managers.
Outsourcing
Contracting with an external party to provide a good or service, rather than performing the work internally.
Target cost
The cost that will provide the desired profit on a product when the seller does not have control over the product's price.
Target selling price
The selling price that will provide the desired profit on a product when the seller has the ability to determine the product's price.
Time-and-material pricing
An approach to cost-plus pricing in which the company uses two pricing rates, one for the labor used on a job and another for the material.
Transfer price
The price used to record the transfer of goods between two divisions of a company.
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 administrative costs.
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