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Cost Accounting Videos 27 videos

Cost Accounting: What is a Cost: Cost Versus Expense?
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What is a Cost: Cost Versus Expense? Cost and expense are pretty similar terms when looking at traditional definitions but they’re a little diffe...

Cost Accounting: How Can Unit Fixed Costs Mislead the Misled?
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How can unit fixed costs mislead the misled? Unit fixed costs can be misleading because the fixed cost per unit decreases as production increases;...

Cost Accounting: What Is Differential Analysis?
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What is Differential Analysis? Differential analysis is a strategy used to make the best decision. Possible choices are compared to determine which...

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Cost Accounting: How Does Differential Analysis Affect Pricing Decisions? 1 Views


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00:00

and finance Allah shmoop How does differential analysis affect pricing

00:07

decisions How well nicely we hope Yeah here's the basic

00:13

gist of differential pricing analysis that whatever price we're currently

00:17

charging for our pine scented hemorrhoid cream well it's not

00:21

optimal right We want to set the ideal price so

00:24

we can reap the ideal or maximum level of profit

00:29

Underlying this whole discussion is the slope of the demand

00:32

curve for the product So think about some examples here

00:35

Let's step into a time machine and visit nineteen ninety

00:38

eight The Land of Steve Urkal Blockbuster Video when it's

00:41

so existed and peak market power for the Windows operating

00:45

system Well simple is it seemed to us now there

00:48

simply was no other purveyor of operating systems in that

00:51

era And without an OS well your computer didn't work

00:54

and you needed a computer to run your word processor

00:57

to dial up the Internet and check your air Well

01:00

email you know to play solitaire Well Microsoft could basically

01:04

charge whatever it likes for that operating system At the

01:07

peak Bill Gates and his pals charged about two hundred

01:10

bucks a unit for their Windows operating system to be

01:12

installed in your computer so you could use it well

01:15

The demand curve for Windows in this era Well it

01:18

was almost vertical like they could raise prices with impunity

01:22

and the volumes they sold would barely diminished So people

01:25

didn't have any other choices if they wanted a functional

01:28

computer and so they'd pay quote anything unquote for the

01:31

Microsoft OS The opposite is true for pure commodities right

01:35

Think copper or bananas or chalk or missile grade plutonium

01:40

We'LL Copper is the same copper no matter where it

01:42

comes from there are different purity ranges but inside those

01:46

standards it doesn't make a difference whether the copper came

01:48

from Chicago or Nairobi or Southeast Moscow Well it comes

01:52

in boxes and bins and it's the same everywhere It's

01:55

hard to have a brand name in copper you could

01:58

sell Maybe LeBron James endorsed copper and still not have

02:02

much pricing power There are too many choices and each

02:04

unit is essentially the same Nobody has any advantage in

02:08

their product over anyone else And because of this fact

02:10

if buyers can buy the same copper for a penny

02:13

less per pound net of shipping in taxes and whatever

02:15

other transport grief there is Well then they'LL buy it

02:18

cheaper so that demand curve is almost flat like tiny

02:22

moves in price mean a massive move in demand on

02:26

the supply side of things The corollary positive element here

02:30

comes from the leveraging of technology meaning that if you

02:33

can find a way for robots using solar power to

02:35

mind copper for ten percent less than the human labour

02:38

mining system well then you can keep the same profit

02:41

margins and sell the copper for way less than what

02:44

everyone else is selling it for In real life most

02:47

products fall somewhere between the nineteen nineties era windows example

02:51

and the situation with a pure commodity like copper Well

02:54

to find the optimal price you use differential analysis to

02:57

test all the possible points along the demand curves You

03:00

crunch the numbers to discover what each increase in price

03:03

will do to the amount of items you sell Raised

03:06

the price of dollar How many fewer units do you

03:08

sell Lower it a dollar How many more do you

03:11

sell Well once you have your data set you confined

03:13

the point where your revenue and or profit are maximized

03:17

it's basically your casino and you want to make sure

03:19

that every table and every slot machine does just enough

03:22

to keep everyone playing while bringing in max profits to

03:26

the house And well if you have to bribe people

03:28

with free cocktails to stay in their seats so be 00:03:30.9 --> [endTime] it booze or a commodity to

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