Important Factors Pricing Decisions

What are the most important factors on pricing decisions?

Consumer demand: This is a major influence on all aspects of a business operation. A company must carefully look at and research the price that customers are willing to pay, the quality desired, and any accompanying trade-offs between these competing concerns. Companies routinely use market research and test marketing to gain such information and will consciously adjust their pricing to confirm this type of research.

Strategy of Competition: Must consider the products and pricing strategies of competitors.

Industry Specific Factors: Costs are a factor in the pricing process, more in some industries than in others. For example, the market will drive the prices in some types of commodities. In other cases (, prices are set by adding a markup to the market cost in order to derive a profit.. Generally speaking, prices are set by considering both cost and market influences and how much people will pay to buy a specific product.

Companies must also be conscious of political, legal, and image-related issues when setting prices. Price discrimination, regulatory agencies, and concerns about reputation are often a factor in how high or low a product price may be set.

What is an Adjunct Account?

An adjunct account is an accounting account that accumulates either additions or subtractions to another type of account. Thus, the original account may retain its original identity and confusing the accountant or user of data is avoided.

Examples adjunct accounts include premiums on bonds payable, which is a contra account to bonds payable; and also accumulated depreciation, which is an offset to the fixed asset which is being depreciated

What is Income Capitalization?

In order to calculate income capitalization, you must first assess the company's capitalization rate . This capitalization rate is a rate of return required to take on the risk of operating the business. In general, the riskier the business, the higher the required return will be for an investor.

The earnings of the business are then divided by that capitalization rate. The earnings to be capitalized need to reflect the true nature of the business, such as the last five years average, current year or projected year's earnings.

Lastly, when determining an income capitalization rate you should compare with rates available to similarly risky investments that are on public or private market to ensure that your calculations are in line with expectations and correct income capitalization computations.

Job order cost accounting system or process cost accounting system.

A manufacturing company may choose to use either a job order cost accounting system or a process cost?

Yes. If the manufacturing company uses a custom tailored manufacturing process for each specific individual job, a job order cost accounting system would be the best to use. For example, an artist who makes custom pieces for clients would fair best using a job order cost accounting system.

On the other hand, if the manufacturing company mass produces its products, it should use a process cost accounting system. For example, a scissor manufacturing company that makes 10,000 scissors a month would be best with a process cost accounting system.