Page 261 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes share of testing these models. But in a research situation, consumers become artifi cially

conscious of the price point and, hence, become artificially price sensitive too. Thus, it is
not unusual to see research respondents saying that a price increase of ` 2 in a pack priced
at ` 10 would make them switch brands; in actual fact, the consumers probably didn’t
know whether the price was ` 10 or ` 11.

Till research methods evolve in this area, pricing decisions will continue to need a lot of gut
feel and sagacity from the marketer.

Source: http://www.thehindubusinessline.in

Self Assessment

Fill in the blanks:
9. ……………… Cost Pricing is a traditional method of pricing a product.
10. For minimum pricing, the selling price is the ……………… price that a company may sell
its product.
11. ……………… is a useful method in situations where there is a lot of intense competition.
12. The target rate of return varies with ………… or what management considers a fair return.

13. ……………… eliminates the difficulty of computing fixed costs into the products.
14. Multinational companies use ……… to minimize their worldwide taxes, duties, and tariffs.
15. Full Cost Pricing is a ……………… of pricing a product.

13.4 Summary

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.

When there is considerable unfilled capacity it may be necessary to accept a lower
contribution in order to provide work in the factory.

The important pricing objective is to exploit the firm’s competitive position in the market
place.
Before determining prices certain important factors should be taken care of.

The various methods of pricing include the following: Full cost pricing; Variable/Marginal
Cost Plus pricing; Rate of Return Pricing; Break-even Pricing; Minimum Pricing, etc.

13.5 Keywords

Marginal Cost Pricing: Under marginal Cost pricing, selling price is determined by adding a
mark up or margin on the total variable costs (marginal cost).
Marginal Costing Technique: Marginal costing technique helps in determining the most profi table
relationship between costs, prices and volume of business.

Transfer Prices: Transfer prices are the amounts charged by one segment of an organization for a
product or service that it supplies to another segment of the same organization.

13.6 Review Questions

1. “Pricing plays a very important role in the marketing strategy of a fi rm and a signifi cant
one in the overall success.” Evaluate the statement.

256 LOVELY PROFESSIONAL UNIVERSITY