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Managing Financial Principles and Techniques Assignment - Essay Example

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Managing Financial Principles and Techniques Assignment

From the tudy it is clear that the very basic two approaches to pricing are ‘cost-plus’ pricing and ‘market-demand’ pricing. There are various pricing strategies such as low or high pricing, permanent or changing prices, penetration or skimming pricing, fixed or variable pricing. No matter whether it is cost-plus or market-demand based pricing, firms are required to constantly estimate the true costs incurred for developing their product. An underestimation of fixed or variable costs can lead to loss. Firms, in order to stay competitive, are to generate a reasonable amounts of profits. Profit is the difference between selling price and total costs. If a firm simply fixes a price without due care of total costs incurred for making or marketing of that product, it is more likely not to generate a reasonable amounts of profit.This research finds that most organizations need to make strategic decisions about setting or accepting the selling prices for the products or services they market. If firms are in marketing condition where the price is automatically set by the market demand and supply forces, the firm will have little or no influence over the selling prices of its products or services. Coffee, sugar, rice markets are of this example. The firm in such condition is required to evaluate the total costs incurred and attempt their maximum to keep per unit costs below the per-unit selling price. In contrast, firms that make highly differentiated or customized products or are market leaders have relatively greater influence in pricing decisions. In such a marketing condition, the pricing decision will be influenced by the cost of the product (Drury, 2007, p. 248) An appropriate costing system Most organizations are depending on marginal costing system since it has long been found to be very effective for management in taking appropriate decisions and understanding accurate cost structures. Marginal ...Show more

Summary

This paper briefly explains the importance of costs in pricing, forecasting techniques in relation to costs and revenues, most appropriate budgetary targets for a firm, methods to reduce costs, financial appraisal and financial statement to assess financial viability in the firm.   

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