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COSTING AND
PRICING
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COSTING
A. PRODUCT COSTING
Specification and calculationof costs in producing or
doing the thing.
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COSTING
A.1 Why Product Costing
- the most precise way todetermine the price of an
article.
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COSTING
- enables the company to
determine what or whatcombination of products are
most profitable.
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COSTING
- used to determine how much
of the indirect costs of acompany each product
should absorb.
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COSTING
- simplifies updating of prices
when conditions change.- sets price frames.
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COSTING
A.2 Elements of Cost
A.2.1 Direct Materials A.2.2 Direct Labor
A.2.3 Overhead
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COSTING
A.2.1 Direct Materials
Cost of materials enteringinto and becoming part of
a product.
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COSTING
A.2.2 Direct Labor
Cost of remuneration for laborers or employer¶s
efforts and skills applied
directly to a product or service.
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COSTING
Overhead can be further subdivided into:
- indirect materialsNot actually incorporated in
the finished products but
essential to its manufacture.(e.g. grease &oil, gloves)
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COSTING
- indirect labor
wages of worker notengaged in the actual work
of production. (e.g. wages
of foreman, cleaners, etc)
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COSTING
- Manufacturing overhead
(electricity, gas, maintenancesupplies)
- sales & Admin. overhead (fax
& telephone, postage, salesexpenses, travel managerial
and clerical salaries, etc.
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COSTING
A.3.1 Fixed costs (relatively
unaffected by increases or
decreases in production volume)
A.3.2 Variable costs (vary directly
with changes in production volume)
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PRICING
B. Product Pricing
Price±
is the value of aproduct or service expressed in
money.
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PRICING
In business, the apparent
objective of pricing is to maximize
profit. Pricing is planned to meet stiff
competition, to improve market
share, and to get a fair return of investment.
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PRICING
1. be aware of possible
choices and options.
2. analyze the factors
involved and
3. have a clear
understanding of the
objectives to be achieved
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PRICING
B.2 Price Factors
- Cost of Product
- Demand- Competition
- Channel of Distribution
- Company Objectives* Penetrate market, increase market share,
project product prestige, maximize profitability,return on investment and minimize losses.
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PRICING
-Factors outside our immediate control
* Exceptional exchange
rate fluctuation, price
control, energy and fuelcrisis, etc.
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PRICING
B.3 Price Structure
- Gives a detailed picture of all cost elements from the
factory to the customer.
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PRICING
- Enables the manufacturer to:
* Build up his final price stage by
stage.* Compare his pricing at all stages
with that of his competitors.
* Analyze his prices to find out
whether cost savings can or shouldbe achieved in one or more
elements.
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PRICING
GENERAL APPROACHES &
STRATEGIES IN PRICING Cost-Plus-Method
Base on the Prevailing Market Price
Below the Prevailing Market Price
Psychological Pricing
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PRICING
GENERAL APPROACHES &
STRATEGIES IN PRICING
Prestige Pricing Penetration Pricing
Price Skimming
Value-based Pricing
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COSTING AND PRICING
THANK YOU!