Homework Question on Incremental Analysis and Pricing
- Explain how the transfer price is determined under each of the approaches.
- Please use the following source only (Do NOT use your own!!). Thank you. Chapters 7 & 8 Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2012). Managerial accounting: 2013 custom edition (6th ed.). Hoboken, NJ: John Wiley & Sons. The material can be accessed by using the following link: https://online.vitalsource.com/signin?return=/books E-Mail: firstname.lastname@example.org password: password Please check grammar and spelling.
- Do not omit words from sentences!! Writers have done so in the past because of their hastiness. Do NOT DO this!! Content of essay must be written in a coherent manner.
- Please use credible/scholarly sources. Do not forget in-text citation as well as a reference page. Must use APA format. Please address all aforementioned questions or requirements in paper.
Homework Answer on Incremental Analysis and Pricing
Pricing is the most critical aspect of any business as it may enable a company to make huge profits or run into deep losses. Pricing involves transferring price to the end consumer. According to Weygandt, Paul, & Donald (2009), there are several approaches that can be used to transfer price, particularly under the pricing methodology. Firstly, the company should calculate its target cost of the products and services to be produced; as a result, the company is able to determine its target selling price.
This is crucial particularly when the charge of a product is dependent on the forces of supply and demand. The company is then able to establish the desired profit and produce the product. Secondly, the target price can be calculated using the cost-plus pricing methodology concept. This is achieved by establishing a cost base and summing it up with a mark-up price to determine the target price. Thirdly, there is a time-and-material pricing scheme that involves setting two rates of pricing, namely labour and material.
The labour costs are calculated, involving the direct labour time and other labour costs that may be involved. The material price is based on the cost prices of the parts involved directly and overhead costs. Finally, the transfer price can be determined using a cost-based approach or a market-based approach. The cost-based approach involves taking into account all the variable and fixed costs involved along the value chain.