LO7.3 Give four common pricing strategies. Full-cost covers the direct variable costs, the direct fixed costs, and an appropriate share of the overhead costs. Marginal-cost covers the cost of one additional unit of service. Direct-cost covers the direct fixed costs and direct variable costs. LO7.5 Define the term target costing.
Target costing assumes the price for a service is given.
Then management subtracts the desired level of profit on the service to obtain the target cost level. Target costing forces managers to take market prices seriously. LO7.6 Conduct basic analyses both to set prices and determine service offerings, particularly under capitated reimbursement. LO7.7 Explain the process for pricing individual services. In brief, one uses CVP analysis.