FMGT 4210 Chapter 12
Target Pricing - ANS-Where the price is based on what customers are willing to pay.
Cost-plus Pricing - ANS-Where a flat rate target profit percentage is added to the full product
cost.
Life-cycle Pricing - ANS-Where the price includes the environmental costs of production,
reclamation, recycling, and reuse of materials.
Locked-in Costs - ANS-Costs that have not yet been incurred but, based on decisions that have
already been made, will be incurred in the future.
Value Engineering - ANS-A systematic evaluation of all aspects of the value chain, with the
objective of reducing costs and achieving a quality level that satisfies customers.
Less Competitive Markets - ANS-Can use either the market-based or cost-based approach for
pricing decisions.
Competitive Markets - ANS-A market in which there are many buyers and many sellers, firms in
these markets must use the market-based approach and accept the prices set by the market.
Non-Competitive Markets - ANS-The firms set the prices in these markets based on the
perceived value of their customer base.
Target Price - ANS-The estimated price for a product or service that potential customers will pay.
Based on the understanding of customer's perceived value for a product or service.
Target Operating Income Per Unit - ANS-Operating income that a company aims to earn per unit
of a product or service sold.
Target Cost Per Unit - ANS-Estimated long-run cost per unit of a product or service that enables
the company to achieve its target operating income per unit when selling at the target price.
Cost Analysis - ANS-The process of analyzing a product or service and determining which costs
through parts, functions, etc... provide value to the product or service being sold.
Cost Incurrence - ANS-Arises when a resource is sacrificed or consumed.
Target Rate of Return on Investment - ANS-The target operating income that an organization
must earn divided by invested capital.
Target Pricing - ANS-Where the price is based on what customers are willing to pay.
Cost-plus Pricing - ANS-Where a flat rate target profit percentage is added to the full product
cost.
Life-cycle Pricing - ANS-Where the price includes the environmental costs of production,
reclamation, recycling, and reuse of materials.
Locked-in Costs - ANS-Costs that have not yet been incurred but, based on decisions that have
already been made, will be incurred in the future.
Value Engineering - ANS-A systematic evaluation of all aspects of the value chain, with the
objective of reducing costs and achieving a quality level that satisfies customers.
Less Competitive Markets - ANS-Can use either the market-based or cost-based approach for
pricing decisions.
Competitive Markets - ANS-A market in which there are many buyers and many sellers, firms in
these markets must use the market-based approach and accept the prices set by the market.
Non-Competitive Markets - ANS-The firms set the prices in these markets based on the
perceived value of their customer base.
Target Price - ANS-The estimated price for a product or service that potential customers will pay.
Based on the understanding of customer's perceived value for a product or service.
Target Operating Income Per Unit - ANS-Operating income that a company aims to earn per unit
of a product or service sold.
Target Cost Per Unit - ANS-Estimated long-run cost per unit of a product or service that enables
the company to achieve its target operating income per unit when selling at the target price.
Cost Analysis - ANS-The process of analyzing a product or service and determining which costs
through parts, functions, etc... provide value to the product or service being sold.
Cost Incurrence - ANS-Arises when a resource is sacrificed or consumed.
Target Rate of Return on Investment - ANS-The target operating income that an organization
must earn divided by invested capital.
