L5

Question 1

What are relevant costs and revenues?

Answer 1

Differ btw. alternative courses of action and affect future results

Question 2

Are opportunity costs always relevant?

Answer 2

Yes, they are the foregone benefits from the next best alternative course of action

Question 3

Are fixed costs irrelevant?

Answer 3

mostly, but they can be relevant when they change due to a decision taken

Question 4

Decision rule for short-term product mix decisions

Answer 4

maximize production of the product with the highest CM per unit of the constraining resource

Question 5

Which decisions does short-run pricing contain?

Answer 5

Pricing one-time-only special orders with not long-run implications (longer than 1 year)

Question 6

Full product cost

Answer 6

assignment of both direct costs and indirect costs to a product.

product cost is used as the basis for setting long-term product prices, so that all possible costs will be recovered through product sales.
The full product cost may be ignored when setting short-term incremental prices. In this case, only variable costs are used to set a threshold for the lowest price that may be charged.

Question 7

What are long-run pricing approaches?

Answer 7

• market based

- cost based

Question 8

market-based pricing

Answer 8

given what our customers want and how competitors will react to what we do, what price should we charge?

–> starts with a target price and then computes a target cost to earn a desired profit

Question 9

cost-based pricing

Answer 9

given what it costs us to make this product, what price should we charge that will recoup our costs and achieve a target return on investment?

Question 10

target price

Answer 10

Is an estimated price used in market-based pricing for a product or service that potential customers are willing to pay

Question 11

target costing

Answer 11

costing method in which the firm determines the allowable cost for a product, given a competitive market price and targeted profit

target cost= price-margin

Question 12

Are R&D and Design upstream or downstream activities?

Answer 12

upstream

Question 13

Why are upstream decisions like design important?

Answer 13

Because they account for much of total life-cycle costs

Question 14

cost-based pricing

Answer 14

involves totaling the costs of providing a product and then adding a percentage to derive a selling price

Question 15

price discrimination

Answer 15

the practice of charging different customers different prices for the same product

Question 16

peak-load pricing

Answer 16

charging a higher price for the same product when demand approaches the physical limit of the capacity to produce that product

Question 17

customer profitability analysis

Answer 17

estimate customer-related costs and assess profitability of a specific customer or group of customers

->allows firm to choose customer mix etc.