Neoclassical Pricing Model : Central Objective Of Short Term Profit Maximisation

In order for a company to succeed and be successful, it is very important for the company to understand the difference between profit and cost of goods. There are costing tools that can help a business figure out what the cost of product is during the manufacturing process. These tools are beneficial for a company to figure out how much profit can be made. These tools take the cost of manufacturing the unit and subtract it from the sale price of the product. Having this information, the profit per unit, is very beneficial for a company to know which products they should produce more heavily, or which ones to eliminate. I want to discuss two costing methods that are beneficial to a

While settling the costs of the item, the advertiser ought to con­sider the goals of the firm. For example, if the target of a firm is to expand quantifiable profit, at that point it might charge a higher cost, and if the goal is to catch a vast piece of the overall industry, at that point it might charge a lower cost.

Marginal Cost Pricing is by setting the price will be equal the extra cost of producing an extra unit of the output. Some firm always set a price that closely with the marginal cost while the period of poor sales.

Marketing is when a business promotes and sells products or services. It’s essentially where a product or even a service is introduced and promoted to other potential buyers. Many businesses use all kinds of different pricing strategies to make their company successful. Sometimes businesses pick the wrong strategies, lose their customers and hence lose income. Pricing strategies relate to the marketing principle known as the 4P’s. Product, place, promotion and price. Most aspects of a business depend on their marketing. All these different pricing strategies focus on generating revenue and gaining profit. To guarantee the profit firms should use the correct strategy for their business. There are several different pricing strategies. I am going to be discussing four of them.

Target Profit = Sales price per unit - Variable expenses(cost per unit) - Total Fixed

Marginal Cost (MC): The change in total cost as the output level changes one unit. (McConnell., 2011)

Editors’ Note: This article is an updated synthesis of in-depth explorations contained in Target Costing and Value Engineering, by Robin Cooper and Regine Slagmulder (Portland, Oregon: Productivity Press, 1997). Part two of the series discusses product-level target costing; part three, to be featured in an upcoming issue, will address component-level target costing. tomers. Consequently, the objective of product-level target costing is to increase the allowable cost of the product to a level that can reasonably be expected to be achievable, given the capabilities of the firm and its suppliers (see Exhibit 1).

At first sight the equation appears to reverse the familiar cost plus price equal profit that many firms use. However, behind the inversion of

A pricing strategy is important to any firm in realising its corporate objectives, whether that be its sales revenue, market share or indeed profit, and thus there is much preoccupation within a business about its pricing strategy. Ultimately, this will be guided by many factors; not least the market power it has to set the price of its products and the nature of the demand curve it faces. This essay will attempt to outline how a firm’s pricing strategy is influenced by the characteristics of the market in which it operates, looking at various market structures, including perfect competition, monopoly and oligopoly.

Target costing originated from Japan in 1960s though; it was not really the first approach to product costs determination. The first idea to determine product costs can be found as early as beginning of the last century at ford in the United States, and development of Volkswagen Battles in Germany in the 1930s.with a fixed product price in order to be affordable for all people (Arnaout, 2001).

3.1 Target costing: It is the estimated price for a product that customers will be willing to pay. The estimates are made on an understanding of customers’ perceived value for a product and competitors responses. Example is in Appendix5. Benefits of target costing at the distribution centres are like helping identify value and non value activities, helping cut costs (material, handling, transportation, installation cost),Increasing

Moreover, in practice products tend to go through three phases: growth, maturity and decline. At each phase, a different pricing strategy can be used to determine price. In the growth phase of a product, new firms’ are likely to use a price penetration strategy (Redmond, 1989). This is where prices are deliberately set low to gain foothold in the market. Therefore firms’ can attract customers to the product and over time as the firm becomes more established, it is able to raise prices. However incumbent firms’ can also reduce prices as a way to maintain their own market share in competitive markets.

Step 2: Reduce this figure by the firm’s required level of profit. This could take into account the return required on any new investment and on working capital requirements or could involve a target margin on sales.

Since the trading has started, the use of financial accounting has put into effect in the contemporary civilisation but it is later on that cost accounting began to make its appearance. The cost accounting system was first adopted in Robert Loder’s farm accounts in 1610-20 (Banerjee, 2014). Since then, the costing system has continued to evolute until up to now. There are two well-known costing systems. Firstly, the Conventional costing systems utilise the direct material and direct labour to products and assign the manufacturing overheads to products based on the volume-based cost driver (predetermined overhead rate) and secondly, Activity-Based costing is method that utilised multiple cost driver and allocation bases to trace overhead cost to final products (Cooper & Kaplan, 1991). As a result, these cost information was useful for external reporting, performance evaluation and analysis, and decision making and planning.

Forced planning. Target costing ensures proper planning well ahead of actual production and marketing. It considered important in meeting all of the goals, as indicated in 2(c). The results show that the most important benefit of target costing is to assists firms in making the trade-offs between cost and quality and functionality and it helps launch products that improve on previous generations by having reduced prices or improve quality and functionality