APPLICATION OF SELLING PRICE

1. fixation of selling price

Marginal cost of a product represents the minimum price for that product and any sale below the marginal cost would entail a cash loss. The price not only connivers the marginal cost but also makes a reasonable contribution towards the common find to cover fixed overheads. The fixation of such a price for a product would be easier profitability of the concern is known.

MAINTAINING A DESIRED LEVEL OF PROFIT

The industries has to cnt price of its products from time to time on account completing, govt. regulation and other completing seasons. The contribution per reduced while the Industries is interested in maintaining level of its profits.

1. ACCEPTING OF PRICE LESS THAN THE TOTAL COST.

Sometimes price have to be fixed below the total cost of the product. This becomes necessary to meet the situation arising during trade depression. It will be enough in such period if the marginal cost is recorded. The selling price may be fixed at a level a bone this cost through it may not be enough to come the total cost. This is becomes in such period any managing contribution towards recovery of fixed cost is good contribution at all . a price less than the total cost but abone marginal cost may be acceptable when a specific order has been received and it shall not different the home market.

Selling at marginal cost may be recommended below the extra ordinary situation e.g/

i)                    When it is designed to eliminate weak competition;

ii)                  When the production is to be kept continued because otherwise there is a danger of heavy cases on account of shut down;

iii)                When goods are likely to be furnished by the passage of time.

iv)                When a new product is to be introduced in the market or an existing one is to be made more popular.

v)                  When one product can be sold with profit in combination with some often product.

1. DECISIONS INVOLVEMETS ATTENTIVE CHOICES

CPV analysis helps the manager ement in making decisions introducing alternative choices. We are explaining below how managerial decisions are taken through CVP analysis.

A)    DETERMINATION OF SALES MIX.

Pursing that fixed cost will remain inflected, decision regarding sales production mix is taken on the basis of the contribution per unit or each product. The product which given the highest contribution should be given the highest priority and the product shose contribution is the least should be  given the least priority. A product giving Negative contribution should be discontinued to continue its production are other reasons to continue its production

B)    EXPLORING NEW MARKETS

decision  regarding selling foods in a new market (whether Indian or foreign) should be taken after consideration the following follows:

i)                    Whether the firm has surplus capacity to meet the new demands:

ii)                  What price is being offered by the new market? In any case it should be product plus any additional expenditure to be incurred to meet the specific requirements of the new market.

iii)                Whether the sale of goods in the new market will effect the present market for the goods? It particularly trade incase of sale of goods in a foreign market at a price lower than the domestic market price.

C)    DIS CONTINUANCE OF A PRODUCT LINE

The following factors should be consideration before trading a division abort the discontinuing   of a product line:

i)                    The contribution of a product given by the product

ii)                  The capacity utilisation whether the firm is working to full capacity or below normal capacity.

iii)                the availability of product to replace discount which the firm wants to discontinue and which is already accounting for a significant proportion of total capacity.

iv)                The long term prospects in the market for the product.

v)                  The effect on sale of other products. In the same cases the discontinue of product may result in heavy decline in sale of other product of the firm.

MAKE A BUSY DICISIONS

Whether a particular part of the finished product is to be manufactured within the industries or it has to be brought form outside will depends on the consideration of marginal costs. The marginal cost of manufacturing is to be companed with the purchased  price of the relevant meterial and if the marginal cost is more than the puchase price a decision as to buying it from the market can be taken.

E) SHUT DOWN OR CONTINUE

Sometimes a business is knowned with the problem of continuing or suspending  the business operation. Such suspicion of business operations may be of a temporary or a permanent nature. In the  case it may be  turned as shut down while in a latter case operation.shut down may be necessary due to some temporary difficulties depression in the market; inadequate inequality of raw meterial power etc. while duciding whether to shut down between the cost e.g lay off or retrechment compansarion to worker   loss of good  will purchasing and storing cost plant etc. and benefit e.g sawing of fixed costs according to  operating is aduisable to shut down or vice versa.

Q6a) lifo method is based on the assumption that last items of material purchased is the first to be issued.

2) in lifo price of the last consignment is used for pricing Merrill issues until it is enchvsted

in LIFO unit issued are priced at the oldest cost price listed in stock ledger sheets.

1. lifo helps on reducing the burden of income tax during period of rising

3.fifo is not suitable In time of rising or falling price.

1. in lifo stock in hand is valued at price which might have become out date when compared with current inventory price.

In lifo stock considered of recent purchased of materiel hence its value is based on percent price condition.

CONTRACT COSTING – Contract costing does not in principal differs from job costing. A contract is a big job while a job in a small contract. The term is usually applied where at different sites large scale contracts are carried contractors, etc. this system of costing is used.

COST PLUS COSTING- In contract where besides ‘cost ’  an agreed sum or percentage to covers overheads and profit is paid to contractor, the system is returned as cost plus costing.

BATCH COSTING- Where order or jobs are arranged in different batches after taking into account the commercial of producing articles, batch costing in employed. this in this method the cost of group of products is ascertained. The unit of cost is a batch of groups of identical products instead of a signal order of contract.

PROCESS COSTING-If a product passes through different stages each distinct and well defined, its is desired to know the cost of production at each stage. In order to ascertained the same process account is opened for each process.

OPERATION COSTING – Operation costing is a further refinement of process operation costing. The system is employed in industries where mass or reptitine production is carried out or where article or components have to be should semi finished stage, or for convenience of issue for elder operations. The procedure of costing except that cost unit is as operation instead of a process.

Unit costing (out put costing or single costing)

In this method cost per unit of output or production as curtained and the amount of each elements where constituting such cost is determined where the product can be expressed  in identical  quantitative unit and where manufacture is continuos, this type of costing is applied. Cost statement or cost sheet are prepared under which the nations items of express are classified and the total expenditure is divided by total quantity produced in order to arrive at per unit cost of production.

OPERATING COSTING-This system is employed where expenses are incurred for previous of service  such as those rendered by bus companies, electricity companies of railways companies. The total expenses regarding operation are denied by the unit as may be  appropriate(eg, total number of passenger-Kms in  case of bus company,) and cost per unit of service is calculated.

DEPARTMENTAL COSTING -Ascertained of the cost of output of each department separately is the objective  of  departmental costing. Where a factor is divided into a number of departments, this method is adopted.

MULTIPLE COSTING (COMPOSITE COSTING)- Under this system the cost of different sections of production are combined after finding out the cost of each and every part manufactured. The system of ascertaining cost in this way is applicable plots e.g motor cars, engineers. Machine tools, type writer, radio, cycle, etc.

DOWNLOAD