Management Accounting Best Practices: A Guide for the Professional Accountant

Chapter 11

Pricing Decisions

The realm of price setting is an arcane one for the accountant, who is frequently asked for advice regarding the best price at which a product or service should be set. This apparently simple issue involves a multitude of questions, including how low a price can be set, how to determine long-range prices, whether to follow the pricing of the industry leader, how to set transfer prices, and what to do about predatory pricing or dumping by competitors. The answers to these questions, and more, can be found in this chapter.

The following table itemizes the section number in which the answers to each question posed in this chapter can be found:

Section	Decision
11-1	What is the lowest price that I should accept?
11-2	How do I set long-range prices?
11-3	How should I set prices over the life of a product?
11-4	How do I determine cost-plus pricing?
11-5	How should I set prices against a price leader?
11-6	How do I handle a price war?
11-7	How do I handle predatory pricing by a competitor?
11-8	How do I handle dumping by a foreign competitor?
11-9	When is transfer pricing important?
11-10	How do transfer prices alter corporate decision making?
11-11	What transfer pricing method should I use?

11-1 WHAT IS THE LOWEST PRICE THAT I SHOULD ACCEPT?

A customer may call with a special request for an order that is priced very low. The customer may be playing off the company against another one of its suppliers, or perhaps has a very large ...