Roles of Cost Accounting in Selling Prices
Cost accounting provides management with costs for products, inventories, operations or functions and compares actual to predetermined data. When any product finished its producing time on the line and will be sent to store for sale in showroom then salespersons and managers should know how much is its cost of sales.
It also provides a variety of data for many day-to-day decisions as well as essential information for longer-range decisions.
Actually cost accounting is accounting for a producing unit and it controls final cost of manufactured items for sales department information
Role of Cost Accountant
Most organizations need to make decisions about setting or accepting selling prices for their products or services and this is main duty of a cost accountant.
How a cost accountant recognize selling prices
In some firms prices are set by overall market supply and demand forces and the firm has little or no influence over the selling prices of its products or services. This situation is likely to occur where there are many firms in an industry and there is little to distinguish their products from each other.
No one firm can influence prices significantly by its own actions. For example, in commodity markets such as wheat, coffee, rice and sugar, prices are set for the market as a whole based on the forces of supply and demand. Also, small firms operating in an industry where prices are set by the dominant market leaders will have little influence over the price of their products or services. Firms that have little or no influence over the prices of their products or services are described as price takers.
Role of Market in Cost accounting
In contrast firms selling products or services that are highly customized or differentiated from each other by special features, or who are market leaders, have some discretion in setting prices.
Here the pricing decision will be influenced by:
- The cost of the product
- The actions of competitors
- The extent to which customers value the product
We shall describe those firms that have some discretion over setting the selling price of their products or services as price setters. In practice, firms may be price setters for some of their products and price takers for others.
Where firms are price setters cost information is often an important input into the pricing decision. Cost information is also of vital importance to price takers in deciding on the output and mix of products and services to which their marketing effort should be directed, given their market prices. For both price takers and price setters the decision time horizon determines the cost information that is relevant for product pricing or output mix decisions.
We shall therefore consider the following four different situations:
- A price-setting firm facing short-run pricing decisions
- A price-setting firm facing long-run pricing decisions
- A price-taking firm facing short-run product mix decisions
- A price-taking firm facing long-run product mix decisions
In this section we shall focus on three approaches that are relevant to a price-setting firm facing long-run pricing decisions. They are:
- Pricing customized products/services
- Pricing non-customized products/services
- Target costing for pricing non-customized products/services
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