Chapter 12

Question 1

Marginal cost

Pricing 

Answer 1

Useful as a minimum price in situations where they respect, pasty and a one-off order is being priced.

May lead to fix cost being ignored. In reality, these cost will also need to be covered in the long term.

Question 2

Relevant costs

Pricing

Answer 2

Incorporates opportunity costs as well as basic incremental costs

This can help to set a minimum acceptable price in situations where there are scarce resources.

This can also be used in minimum pricing situations.

Question 3

Full absorption cost (either traditional, or ABC)

Pricing

Answer 3

Assuming budgeted demand is achieved, this approach will guarantee that all costs are covered over the short and long-term

K needed to set a price that customers are happy to pay another basis on which overheads absorb are fair.

Fairly quick entry method of setting prices.

Doesn’t encourage efficiency savings

Question 4

Standard cost

Pricing

Answer 4

Allows you to have a set selling price at the start of a period that can be kept stable and linked to the target efficiency levels.

Any internal inefficiency will be borne by the business rather than being passed on to the consumer.

Question 5

Use of big data technology to analyse product mix

Answer 5

It becomes more viable to predict trends, analyse customer behaviour, understand what customers want and deliver what customers want.

It’s possible to minimise the risks of introducing new products by testing scenarios through knowledge of variables.

There is more potential for customer, segmentation, targeted marketing and customisation of products.

Better decisions can be made by revealing new insights into customer, thinking product usage and so on.

You can help develop future products services with a fast time to market.

It can help develop appropriate performance indicators and provide a better idea of non-financial performance, which indicates better long-term direction and earlier corrective action 

Question 6

Analysis of product mix

Data obtained in the following areas is likely to influence future product mix decisions

Answer 6

Changes in consumer preferences, fashions or interests

Customer feedback on the value attached to a product

Impact of seasonal fluctuations – the mix may be different at different times of the year

Competitor strategies for different products.

Repeat business and use of consumer loyalty cards.

Impact of marketing approach on the sales and market share of different products

Success of branding individual products, such as how good customer recall is of the features are in the brand.

Impact of economic changes – future exchange rates change may impact on products with a high proportion of sales overseas

Availability of resources

Production capacity – what are the consequences of major changes in the balance of products produced?

Production costs – major changes in prices affecting certain products, such as technological developments affecting production methods