Inventory Management and Strategic Pricing Models

Types of Inventories

• Materials and supplies
• Work in process
• Finished products

Production Costs of Goods in Process

When initial products are in the factory process, they should be added to manufacturing costs. The formula is as follows:

CFAB = CMD + CMI + CMOD + CMOI + OCI + (IFPP - IIPP)

Understanding Labor Overruns

These represent all costs that the company is "forced" to assume when a worker is on the payroll and has a regular full-time job.

Fixed and Variable Costs

Fixed Costs

Fixed costs are those whose amount remains unchanged over a period of time. Example: Rent is a fixed cost because, regardless of the number of units produced, the payment is always the same.

Variable Costs

These are called variable because the cost varies in direct proportion to the volume produced or services provided. Example: Materials represent a variable cost because a greater number of units produced requires a greater amount of materials, and vice versa.

Definition and Importance of Pricing

The price is the value that is set periodically for goods or services, which are related to demand, supply, and cost.

Pricing Against the Competition

A company must distinguish the prevailing market price and then examine its profit margins accordingly.

Determining the Fair Price

The price is the most important message a company transmits about its product or service. You must try to fix a price that covers the costs of manufacturing and distribution.

Factors in Price Fixing Decisions

• Whether the product or service is unique or if there are similar items.
• Seasonal demand.
• The amount of money consumers are willing to pay.

Strategies for Selling at Lower Prices

A company may decide to sell cheaper when:

• The company has excess inventory problems.
• The competition has a more tempting offer.
• Consumers have lost interest in the product.

Price Levels and Strategic Decisions

Penetration Pricing

This is the price applied when a product is first launched into the market.

Discriminative Price

This price is offered depending on the socio-economic segment of the market.

Subsidized Price

This is a price that receives financial support from the state.

Prices According to Season or Fashion

These prices vary significantly from one period to another or due to a high increase in demand.

Considering the Cost Price

These prices originate from inside the company and are directly related to the internal cost structure.

According to Market Price

These prices originate from outside the company and are related to the competition, i.e., the balance of supply and demand.

Understanding the Break-Even Point

The break-even point is the amount of units that must be sold to reach a state of zero gain (no profit, no loss).

Calculating the Break-Even Point

Unit Variable Cost (CVU)

General Scheme of Income Tax

The estimated income tax is calculated at a rate of 30% of the net income generated at the end of each year. This calculation is performed in the Annual Income Tax Affidavit within the first three months of the following year, according to the payment schedule provided by SUNAT.