Strategic Management Accounting Essays

3579 Words Sep 8th, 2013 15 Pages
TABLE OF CONTENT
Executive Summary …………………………………………………………………...................2 1.0 Introduction …………………………………………………………………………………...3 2.1 Economic Theory ……………………………………………………………………………...3 2.2 Costs …………………………………………………………………………………………...5 2.3 Cost – plus Pricing …………………………………………………………………………….5 2.4 Production Mix Decision …………………………………………………………..................6 2.5 Target Costing …………………………………………………………………………………7
Conclusion …………………………………………………………………………….................8 2.0 The Role of Standard Costing …………………………………………………….................8 3.6 The Role of Variable Analysis ………………………………………………………………...9 3.7 The Values and Limitations of Variance Analysis …………………………………………..10
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The Board of Directors expressed concern that the company has not been meeting its budgeted target profits. The Managing Director believes the reason for low profits could be that the products have not been priced to sell in sufficient numbers. However, it has been recognized that the reason for lower profits may be more complex than they thought. The report explains why.
Product pricing decisions are very important and complex to an organisation. They show influence on the operation, scope and product mix and long term profitability of the organization. Thus, the correct pricing decisions are quite vital. If made hastily they can lead to Manac losing revenue. Prices set too low would result in us missing out on additional profits and if set too high customers would not buy products offered by us and choose another company. Our problems with profit could be a result of poor pricing decisions. There are a number of pricing decision models which can assist with allocating resources and maximizing sales which can generate profit.

1.1 Economic Theory
The theoretical solutions to pricing decisions can be derived from Economic Theory which relates demand and production volumes to pricing. This model assumes that a company will attempt to set selling price at a level where profits can be maximized. It also assumes that the lower the price, the larger the sales volume. This is demonstrated in the Demand Curve in figure 1.

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