Finance Report: Pricing, Capacity Concept, Ethics/Behavior - Analysis

This finance report provides an analysis of pricing strategies, capacity planning, and ethical behavior within a business context. The report addresses several key questions, including the computation of allocated fixed costs and the impact of pricing changes on customer behavior. It explores both cost-based and market-based pricing approaches, considering their implications for profitability and competitiveness. The concept of a profit center is discussed, highlighting its role in departmental decision-making and performance assessment. Furthermore, the report examines the strategic implications of market-based pricing when selling to external customers and the potential benefits and drawbacks of pricing strategies within a corporate group. References to relevant academic literature support the analysis, providing a comprehensive overview of the subject matter. This student-contributed report is available on Desklib, a platform offering AI-powered study tools and resources.

Running head: PRICING, CAPACITY CONCEPT, ETHICS/BEHAVIOUR
Pricing, Capacity concept, Ethics/Behaviour
Name of the Student:
Name of the University:
Author’s Note:

1PRICING, CAPACITY CONCEPT, ETHICS/BEHAVIOUR
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................2
Answer to question 3:.................................................................................................................2
Answer to question 4:.................................................................................................................3
Answer to question 5:.................................................................................................................3
Sub part (a):............................................................................................................................3
Sub part (b):............................................................................................................................3
References:.................................................................................................................................4

2PRICING, CAPACITY CONCEPT, ETHICS/BEHAVIOUR
Answer to question 1:
Computation of allocated fixed costs:
Answer to question
2:
Last year
budgeted cost per meal was $6.00, but in 2019, the budgeted cost per meal would be $6.25.
There is an increase in cost of $0.25 per meal in 2019. Hospitals will react negatively with
the increase in cost and resulted high price of meal. They will find external sources for their
requirements of meals.
Answer to question 3:
Alternatively, a cost based pricing system can be adopted by the SCC. It will help
them to make profit irrespective of increase in input costs. In long run, there may be
fluctuations in the price of inputs and also there may be fluctuations in demand. Keeping in
mind all those factors, the cost based pricing could be a good strategy for them. For this case
study assuming a 5% markup, the cost based budgeted price can be computed as follows.

3PRICING, CAPACITY CONCEPT, ETHICS/BEHAVIOUR
Answer to question 4:
Profit center concept helps in assessing profitability of departments individually. It
makes the departments less dependent and allows them to take decisions, which will help
them to increase their profitability (Klychova et al. 2015). Overheads will be allocated to the
respective department based on the traceability of those overheads. Profitability analysis of
various departments helps the management to know the viability of different departments and
helps in keep or drop decisions.
Answer to question 5:
Sub part (a):
If the SCC is made a Profit center and they are allowed to sell the meals to other
hospitals also, they could make more profit. If such situation arises, then it would be better to
follow market based pricing strategy (Hinterhuber and Liozu 2014). Other outside hospitals
will have various options for their supplies, if competitive market-pricing strategy is not
adapted then the company will no longer be surviving in the market.
Sub part (b):
In such a situation, if the SCC is adopting a market based pricing strategy, then they
would be charging same price for the customers within the Superhealth Group. They may not
be getting the benefit of cost-based pricing. Cost based pricing charges price based on the
cost of the product and it fluctuates with fluctuation in the cost of the product. Those benefits
could not be materialized by the customer within Superhealth Group.

4PRICING, CAPACITY CONCEPT, ETHICS/BEHAVIOUR

5PRICING, CAPACITY CONCEPT, ETHICS/BEHAVIOUR
References:
Hinterhuber, A. and Liozu, S.M., 2014. Is innovation in pricing your next source of
competitive advantage?. Business Horizons, 57(3), pp.413-423.
Klychova, G.S., Zakirova, A.R., Zakirov, Z.R. and Valieva, G.R., 2015. Management aspects
of production cost accounting in horse breeding. Asian Social Science, 11(11), p.308.