The use of job costing as a tool for the pricing and cost control decisions in the printing industry: the case of Société de Presse et d'Editions (SOPECAM)
par Christian Kuiate Sobngwi
University of Buea - Bachelor of Science 2003
Depending therefore on the objectives of the company, it can adopt various pricing techniques. These techniques normally are based on a great number of factors, but here we will be interested in studying those that are based on the cost information provided to management. Pride, Hughes and Kapoor 19(*)(1988) call them cost-based or cost-plus pricing techniques). We will focus on three of them namely: Total cost-plus, manufacturing cost-plus, and decision-relevant cost-plus method.
In this method, the future selling price is the result of the addition of a desired set of mark up to the total unit cost of a product or service. This method may be a good one, but the problem here is that it is sometimes difficult in some industries to succeed in allocating overhead expenses to the units of production.
It follows quite the same procedure as the previous one, but here, the costs that are taken into account are the manufacturing costs and as such overhead costs are left out of the calculations. A large mark up percentage is therefore required to cover these overheads and allow for reasonable profits for the firm.
Drury (1992) identified that this method has as main advantage the fact that the cost figure used for pricing is the one used for stock valuation. In this case, if the firm has been producing similar products in the past, it may be easy to determine the estimate of the total manufacturing costs by simply adjusting the old figures.
It consists of basing the pricing policy the figures of the incremental costs due to producing the new elements. Here what is required is a perfect knowledge of the avoidable and unavoidable costs if the production of a particular item is started. Since the fixed costs of the company will remain constant for short period, then the mark up is added to the additional cost of producing that new item.
The above three refer to the most popular methods of pricing, there is another one based on activity-based cost, which just consists of adding the mark up to the activity based-determined cost. That method is not very different from the others, the main difference residing in the method of determining the unit cost.
These costing methods as we have outlined at the beginning ignore many factors and as such must be used alongside with other elements to come out with a more reliable selling price. The following limitations of these methods explain why they should not be solely used.
* 19 Pride, W.M., Hughes, R.J.,& Kapoor, J.R. (1988): Business (2nd edition), Houghton Miflin, Boston