acct test 2

  1. cost plus pricing formula
    • fixed cost
    • + variable cost
    • + target profit
    • ___________
    • target revenue / number of expected sales =
    • cost plus price charged to each customer
  2. use cost plus pricing when
    you have a distinguishable product and have some control over pricing
  3. target costing formula
    • revenue at market price
    • -desired profit
    • -fixed costs
    • ___________
    • - target total variable cost/ number of expected sales =
    • target variable cost per customer
  4. use target costing when
    when you have no control over price -- price taker
  5. if a factory has idle capacity
    do not include fixed manufacturing overhead (or any other fixed cost) or things like marketing costs in decision to take on a job because we would have paid for that regardless of taking the special order
  6. incremental analysis /expected decrease in operating income formula if fixed expenses do not change
    • expected decrease in revenues
    • - expected decrease in variable expenses
  7. incremenental analysis formula if fixed expenses changed
    • expected decrease in revenues
    • -( decrease in variable expenses+ decrease in fixed expenses)
    • if products incremental revenues exceeds incremental costs do not drop
Card Set
acct test 2