Cost Information for Pricing Decisions
Pricing decision is made based on market conditions. A demand curve is prepared based on the market conditions and market research regarding the buying intentions of people at various price points. Pricing decision is made to maximize revenue or profits based on which is the appropriate measure at the point in time. What is the role of cost information in pricing? The cost information gives the profit or loss made by the company with respect to the pricing decision. Normally profits are made by companies. But there are abnormal situations when company has to accept loss at the time of planning itself and do its best not to exceed the budgeted loss. It is cost information that provides the budget estimate of profit or loss. One can say the cost information provides to identify the price point at which minimum loss may be made, while protecting the market share or market size that would enable the company to make profits in the future.
Cost Behavior Analysis and Relevant Costs