Part V

Revenue Estimation

Chapter 11

Price Targeting on the Basis of Cost Behavior

About This Chapter

Chapter 11 begins our review of the revenue estimation section by explaining how our knowledge of our organization’s cost behavior affects our pricing decisions and thus our profitability. By differentiating between costs that remain fixed across different volume levels and costs that vary across different volume levels, we can estimate the target (i.e., planned or budgeted) price that would be required to earn any specific level of profit.

Thus, in this chapter, we establish an analytical process that emphasizes a self-focused consideration of an organization’s internal cost structure. Chapter 12 and 13 then expand this self-focused analytical ...

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