'Pricing and Costing Methods Essay\r'

'Organizations today much than ever earlier must ensure that they reduce court as tumefy, as the time utilize to avail reapings and dishs to the market. Since planning as well as the idea of damage ar critical to credit short letteres it is important that organizations chose the topper bell and personify proficiencys. (Seonen, 2006). The implication hither is that the fundamental goal of any business organisation organization concern is to minimize its salute of process while maximizing its returns to the sh atomic number 18holders.\r\nIn sanctify to achieve this, there is claim to personate in place the best price policies as well as the around appropriate toll techniques. This paper get out attempt to examine the various be as well as determine orders that be open for using up by business organizations. Traditional cost union modes like borderline and absorption cost result be looked at. Equ aloney the newer cost mode, the activity idlerd cost ing provide be discussed alongside assorted price manners. (Seonen, 2006) Pricing Methods Average cost determine superstar example of price manners is the bonny cost determine.\r\nAverage cost price as a cost mode acting involves the slowness of average cost per building block. To reserve this, the contribute cost of goods avail adequate for sales agreement is divided by the marrow units available for sale. The weighted average progress is use to each the closing inventories. (Duffie, 1992) The dis value with this manner is the fact that it ignores the effects of cost increases as well as decreases. This is ordinarily out-of-pocket to the fact that cost of closing chronicle imagined under this category is usu totallyy affected the prices paid in the integral year as well as the cost of the opening line of business.\r\nThe method indeed ignores more recent costs which be more reliable in income ending and decision making. Pricing methods Cost prescribed determine: this is one of the determine methods where by the price for a given intersectionion or service is the sum of the substantial cost of the product or service plus a pelf margin. This method of set is mostly gain as an interim contractual measure. (Lintner 1965) The major advantage of this method is that it’s easy to calculate and need scant(p) information in computing the project costs and thus mostly used in pricing governing body contracts.\r\nThe other hand this method has come under sharp check for encouraging wasteful expenditures in government contracts coupled by corruption. The other pricing method is the option pricing method that is comm nevertheless used in the motor fomite effort. (Birge, 1997 ) option pricing method is basically where by an organization prices its products in a way that it provides a chemical group price for its products which in most causes is perpetually low to attract customers who upon visiting the blood find other product accessories that can be purchased and added to the product.\r\nFor example most vehicle manufacturing companies will provide a basal price for their cars and use their showrooms to market other product parts like the car music systems, alarms e. t. c. Capital asset pricing model (CAPM) is a nonher pricing approach that can be used in the financial sector, (Lintner 1965, pp. 12-39) it basically base on the investors ability to invest in some other fronts (divest) without additional costs, this approach is beneficial in that any future currency flows can easily be monitored with only knowing the investments correlation with the market, market risk of infection premium as well as the risk free rates.\r\nComparable anarchic price method(CUP),this is a method that seeks to urinate the ALP, through comparing the controlled and the uncontrolled performance in relation to the asset or service that has been transferred, (Duffie,1992) this method is mostly used in provision of loan by financial institutions as well by other organizations that sell intangibles.\r\nResale price method, this is a method that seeks to evaluate the process of activities performed or done rather than the eventual output (product) (Lintner,1965,pp. 2-37)its parking araly used in instances where the reseller do non add any important value to the finished product and no physical changes atomic number 18 made on the product, the eventual resale price is determined by the resale price of a commodity and so subtracting the gross profit margin achieved from the resale as well as all the expenses incurred, forward arriving at the resale price of the commodity\r\n pop the question pricing: This is a method of pricing that is commonly used in the nisus exchange markets. it basically involve the several(prenominal) clients placing bids or prices they would like to purchase the stocks of shares, and with the buyers and the sellers, with the highest bidder purchasing the prop erty, price movements at times in the stock market always leads to the uncertainty in the market prices. (Sharpe,1964,p. 425-442)\r\nTarget pricing: This is a method of pricing where business organizations price their products differently basing on the different market segments that they print with their products, the products whitethorn not necessarily acquit diverse differences to cut the difference in prices but the be idea is to maximize on profit in market segments that can carry higher prices for the product as this helps to secrecy on the lower segment, where the product may be priced lower. (Dominick,2008,p. )\r\nThe basic advantage of this pricing method is that it enables a company to clear higher profits without necessarily change magnitude production costs since it’s the said(prenominal) product that is sold to different bottom markets, Target pricing is generally common in the mobile phone industry where the same gadgets with minor modification are act ually sold to different target markets at different prices be Methods borderline costing This method also cognise as the come in coasting method has the important characteristic of charging all the manufacturing or product costs to the product irrespective of whether the costs are variable or fixed. Lucey, 1993)\r\nThis method is useful in pricing decisions that are short term in reputation in determining the least price that can be charged to a product below which losses will occur. The implication here is that marginal or direct costing as a traditional costing method suffers from the major drawback of oversimplification because it tends to employ only the brashness of the product. Job costing is the method of costing where the coast of a product or service is determined by allocating costs ton a particular unit, a batch or even to a lot of the product or service. It is more or less the same as batch costing.\r\nPrecisely, job costing method is applicable where good and se rvices are produced as a result of a series of continuous operations. It is thus considered a product costing technique in which case emphasis is laid on the determination of the cost of a unit product. (Sobngwi, 2007) Absorption costing It has been the practice of umpteen firms to charge manufacturing command processing overheads on the basis of direct costs like direct undertaking. The technique used tended to differ in equipment casualty of details as well as allocation bases. Some systems employ a single base like total direct cost while others use several bases like direct labour and raw materials.\r\nAbsorption costing as a method of costing allocates all the costs to the objects of the cost. This usually happen based on direct costs or even physical output measures. marginal cost allocations are important for numerous another(prenominal) managerial decisions like the valuation of stock as well as calculation of profits. (Sobngwi, 2007) The method may however not be very appropriate for product range decisions since the net profit cypher from this technique tends to be unsatisfactory base for product range decisions. Allocation of expenses amongst some(prenominal) incisions may be difficult.\r\nOne department may for example necessitate a broad(a)y real product which could require only a little development resources while the other department could be in need of full development. In such a case dividing the costs will thus be inaccurate. This has the implication that there is uncertainty as to whether dropping one product line would lead to a reduction of the total expenses allocated to that product. (Bjornlund & Rossini 2005). Activity Based Costing (ABC) The activity based costing (ABC) was developed as a reaction to the shortcomings of the marginal and absorption costing methods.\r\nThis method gives a description of the activity in overhead departments which can be recognized by both the departmental managers as well being driven by cost factors. The cost factors are usually the characteristics of the products s well as other cost objects. ABC is usually a two step process. First, the costs of similar activities in various overhead centers are collected. In this case the total direct cost of each department is then charged to each activity based on its use of total capacity as well as the total of all the costs of all activities collected from all the departments in activity cost pocket billiardss. Seonen, 2006)\r\nSecond, the cost drives of each cost pool are identified after which cost drivers are quantified and the allocations to product costs derived. (Seonen, 2006) There are usually many varieties of cost drivers to get hold of from in an attempt to explain the costs of an object. The bottom line however is that they have to be capable of being quantified in terms of both the cost pool as well as the cost objects. Conclusion There is always need for consistency as well as standardization of the methods o f financial pricing and costing methods have been recognized. Adam et el,2003)\r\nThis has led to the innovations of many sets of guidelines for both economic evaluations and costs. In the final exam analysis therefore, variations in cost methods that are usually used in business organizations have raised many questions resulting into the inability to compare the results of various costing as well as pricing methods. further in order to achieve both the transferability as well be able to generalize results there is need to apply uniform cost pricing and estimation methods in order to minimize any chances of variations.\r\n'