Volume Profit Analysis and Pricing Strategies

This set of flashcards reviews key concepts related to volume profit analysis and various pricing strategies, including cost-plus pricing, target pricing, market-based pricing, and more.

What is volume profit analysis used for?

It helps management decide on important pricing decisions.

What is cost-plus pricing?

Pricing based on the cost of production plus a predetermined percentage markup.

What are the two types of costs that can be considered in cost-plus pricing?

Total cost or variable cost.

What does target pricing focus on?

Setting price levels at which consumers are willing to buy the product.

What is market-based pricing?

Setting the price of a product at the current prevailing market price of similar products.

What is a challenge of cost-based pricing?

Determining which cost to use and what the final markup should be.

How does higher volume affect fixed costs?

Higher volume spreads fixed costs over more units, resulting in lower unit costs.

What is target costing?

Determining a target cost that must be met to achieve a target profit per unit.

What is value engineering?

A systematic analysis of a product or service to balance overall costs and benefits.

What is peak load pricing?

Varying the price of a product or service based on demand and capacity limits.

How does demand affect peak load pricing?

Prices go up when demand approaches capacity limits and go down when there is excess capacity.

What is quality function deployment?

A method to translate customer requirements into appropriate technical requirements at each development stage.

What does life cycle costing involve?

Tracking and accumulating all actual costs associated with a product throughout its life cycle.

What is the relationship between sales price and target profit in target costing?

Target cost is calculated as target price minus target profit.