pricing policies 4 ser is desi Co approveds TN” which is Bned 4OM mulated OF p any'S some firms even Create anh tore F compe . ve . the overall COG firm: personnel involved j,.° g% 9: 7 whose task j; Bry b composed § departments is . objectives t : subject tO approval 4° fy committee 7 e aH d other TS te firm, C ‘ sales an olicies for fe cases the chief executive te \ Dee tore, or in so ‘i fa a does not stop ONCE a sellin ‘ the firm. ibility . Prices must ee fore product - i. that they ee conn been set for ee [ ‘ i studied or evaluated are set, opera Currey purpose re and other factors affecting the selig’t market conditions, 7 R i ici Decisions Accountant's Role in Pricing i i selling price wit It is highly impossible to set a hout of cost ie regarding production and sale of th the, products and services. It is the accountant's Fesponsipi;ti accumulate and summarize the cost data needed in fon ity Pricing policies for the firm. Muley As regards the management services con engaged to give technical advice in the foi Policies, or review an existing one. In any case t r . the objective is _to recommend a_ pricing policy “that B28eme, attainment of the company's goals. It must be emphasise Point that the M.S. consultant should ney tte making pricing decisio: mn: independence. oe sultant, he rmulation of Dri ic er Participate may impair | ie firm, for this : a is not as desired profit. A 4; tative forXn Je Ff NG 9/Pricin, Decis ter 2/"ricing C ions cha ee ' chapter 2 > Dy ta 8s aintt —_ ee a Y) 4 the type of ‘ tit! such ampany's, overs Product op Service that the company sel ie, the a to the public, Piective 3 the image that it wants > My iat a factors, on a “oeenent style, among others. T bos te type of industry. t Can Sty fed ¥ te i land, Consist o. Whi market where the prey, ch th 9 f competito © company belongs, type gag . ‘i an S€rvices are sold. €conon e , | trends, political Situation 80Vvernmental influence.” oh MARKET MODELS AFFECTING PRICING DECISIONS y the S of mark, ii i , The type: €t in which the COMPany's goods are trac ot, greatly influence the for ation of the firm's ‘pricing Polic: 8 These market types 'NClude th, ie following: 1 Perfectly Competitive Market 2. Nopolistic Competition 3. Monopoly 4 . Oligopoly Perfectly Competitive Market Economists the ma Selling prices and supply, tices Conside Products in Market_ donot “Necessarily ha as already stat d, the market fa. Selling Price far +n~:" .other Factors Considered in Price Setting The sales price figures computed in all the foregoin lustrations may be more appropriately called tentative sal rices- This is because, as already mentioned at the beginning o this chapter, some qualitative factors must be considered before 3 final selling price is set. To reiterate, among these are price ceilings and other pricing -regulations imposed by some govern- ment agencies, Competitors' sales prices, acceptability of the product at the sales price established, the type of market where the goods and services are sold, etc. Aside from these qualitative considerations, there are still other factors, such as trade discounts and sales taxes, which necessitate some adjustments on sales price Computations. 80 Trade Discount When a firm wants to allow for a certain trade discount on sales, and the selling price computed with the use of any of the methods discussed and illustrated in the previous sections is still exclusive of the discount, (i.e., the selling price is regarded as the net selling price), the adjusted or gross selling price {inclusive of trade discount) may be computed as follows: NSP 1 - Disc. %& Gross selling price Net selling price Rate of discount For example, assume that Bargain Company has computed a selling price of P29.10 using the full cost pricing method. If Bargain Company wants to allow for a 3% discount on sales, and he wants to include this on the sales price determined, the1s follows: an be computed selling pice & REOss NSP __ GSP = Disc. % P29AO 0,03 P29.10 0.97 P39 Sales Tax required to pay sales taxes on goods Some firms are il ome sales price computations services sold. Gross and net case are presented below. any in. Sales Price Does Not Include Sales Tax: : The procedure involves simply adding the applicable Sales ta, to the net selling price to arrive at the gross sales Price figure Net selling price (NSP) Add Sales tax (NSP x TxR) Gross Selling Price Where TxR = Sales Tax Rate To illustrate, assume that the selling price established bya company for its product is P200, exclusive of sales tax of 10%, The gross selling price will be P220, computed as: Net selling price P200 Add sales tax (P200 x 10%) 20 Gross selling priceGross Sales Price Includes Tax: if the sales price give 2 gales tax is based one ner Slfeady includes sales tax, and the s met sates as J < (VAT), the ni sell) as in the case of value adde tax llow et selling price may be determined with the use of the following formula: Sete lling Price Sales Tax Rate Assume, for exam ; firm which sells ple, that Lilito Company is a VAT-registered its product ‘ value added tax of ‘to. Sat P3390 each, inclusive of the The net selling price for Lilito's products may be computed as follows: eae OTHER PRICING TECHNIQUES The following sections deal with two unusual Pricing techniques applied by some firms. These are the loss leader pricing and inferior goods technique. Loss Leader Pricing It is but natural for us to always think of a selling price that will ensure recovery of all costs and generation of satisfactory amount of profit. We do not usually attempt to sell our goods at a price lower than its cost, for this will result into a loss. However, some companies do sell one or some of their5b Techniques for An 434 Part 2/5) the cost, hoping 55 10 take adver, company's ot lower than tay ace of busine * they will buy the ipa Earnings from th regularly—p, than offset the 1035) ine t a price below cost. T 5s at a price their pl multiple produc the customers go to of the low-price offer, regularly-priced products. products are expected to more products 4 from selling the other t called loss leader pricing technique: Inferior Goods When we increase our 1 it is but peed for + sales volume to decrease, since our customers Ww! to to other suppliers selling the same items at 4 si —— But is there a possibility to break this geners rule Some companies have tr d this. They increased their selj), price to a level that 1s much higher than their competitors’, a5 their sales volurne dramatically increased to an UNnExpect.” called inferior goods theo, level. These firms applied the so which is based on the saying that "you get what you paid fo: Some customers relate the quality of a product to its price” Low-priced products are usually of inferior quality than Bar with a high selling price. “ niques should not be used in thy These special pricing tec general analysis of pricing decisions. They should be used on, on a case to case basis, considering strong possibility of succe: 7 selling prices SUMMARY Pricing decision is one of the most important long-ru decisions. that management must make. It refers to the determination of the appropriate selling price for a product or service provided by a firm. which consists of the procedures A firm's pricing policy, involved in setting the selling price, as well as the methods anc systems needed for its implementation, plays a very important role in the attainment of one of the company's objectives - profit maximization. This is because a selling price must be set, such that it will ensure full recovery of costs and generation of a satisfactory amount of profit. The basic formula used to determine selling price involveshe production target profit. Fron operating cost to. a desired mark- uP methods arise, which ath Pasic formula, various Prithe tthe mark-up is computed {#F from each other only in t Wine tarect Provit oF desited mark-up may be based on cost, gue? = toenail cal pital Tals cost, variable cost, conversion cost, i ornethod, the so seloyveds or on sales. One cost-based pricing, iacdeeision oka led differential cost pricing, is usually applic’ spt or reject a W&ca8¢5> involving alternatives such as io acceP J ® special order at a special, discounted jce> + * Prthe se de are computed with the use of the different pricing ened he considered merely as tentative sales prices. jnal deci on fhe selling price to be set is affected by some other factors, such as the type of market where the goods and services es sold, government regulations, competitors' action, the image ee the company wants to project to the public, the nature of the company's product and business, the customers’ ind the competitors’ action or expected reaction to the sales prices and most importantly, the overall goal of the company. pISCUSSION QUESTIONS 1. Define the terms pricing and pricing policy. 2. Discuss the importance of the firm' of the company's objectives. 3. Enumerate some qualitative Briefly discuss how such fact 8 pricing policies in the attainmen factors that affect pricing decisions ors affect pricing decisions. 4, What is the basic formula to compute a selling price? 5. Enumerate three bases that may be used to determine desired mar up or target profit. 6. When do we use differential cost pricing? 7. What is meant by Lose Leader Pricing? 8. Oiscuss the underlying concept behind the inferior goods technique a special price setting method. When is this technique applicable? 9. Oo sales tax and trade discount affect sales price computatio Elaborate. 10. Among the different price setting methods discussed in the chapt which is the best? Explain why you think your choice is the best.