STANDARD COST PRICING is a development of the cost-plus approach to setting prices is to use cost 'standards' based on management accounting systems. Variable costs of production (materials, labor, bought-in components, etc.) are added up and divided by the number of units intended to be produced to give a variable cost per unit. Similarly running costs of the organization (rent, rates, energy, maintenance, together with management and administrative costs) are totaled and divided by the number of units to be sold to provide the fixed cost per unit. Finally the profit required is added in on a per unit basis. Adding together the variable cost, fixed cost and profit per unit gives the selling price.
OVERHEAD ABSORPTION is the term used for describing the transfer of value from a fixed asset such as a building or machine to the final product. In this way the indirect costs of the entity can be assigned to the products or services supplied.
CASH DRAW see PROPRIETORS DRAW.
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