Page 253 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting Gopika Juneja, Lovely Professional University

Notes Unit 13: Pricing Decisions

CONTENTS

Objectives
Introduction
13.1 Need of Pricing Decisions
13.2 Types of Pricing Decisions
13.3 Methods of Pricing

13.3.1 Full Cost Pricing
13.3.2 Variable/Marginal Cost Pricing
13.3.3 Rate of Return Pricing
13.3.4 Break-even Pricing

13.3.5 Minimum Pricing
13.4 Summary
13.5 Keywords
13.6 Review Questions
13.7 Further Readings

Objectives

After studying this unit, you will be able to:

Identify the need of pricing decisions
Describe the types of pricing decisions
State the methods of pricing
Introduction

Pricing which is part of the overall marketing strategy plays a very critical role in the success of a
company as it is able to increase the profitability and or increase the market share.

Normally, the higher the prices means higher profit being attained but might means lower market
share. Pricing ties very closely with the various stages of a product life cycle. Under normal
circumstances, selling price is based on total cost, i.e., production, administration and selling

overheads – fixed as well as variable plus normal profit. In the long-term planning, selling price

must cover all costs plus a desired profit. There are, however, a variety of business situations

where fixation of selling price may vary from inclusion of desired profit to selling even below

total cost. Marginal costing technique helps in determining the most profi table relationship
between costs, prices and volume of business.
13.1 Need of Pricing Decisions
When there is considerable unfilled capacity it may be necessary to accept a lower contribution

in order to provide work in the factory. Alternatively, if there is sufficient order, normal price

may be quoted and the contribution obtainable may be high. The aim of the fixer of prices is to

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