The Role Of Accountant In Pricing Strategy Formulation

Project and Seminar material for Accountancy

Abstract

In any flourishing business today, pricing has been their key function. This is so because the rate with which modern business is growing coupled with the worldwide inflationary trends, more dimensions will be added to the problem of pricing. In any market economy where goods and services are traded, pricing is very crucial as the prime mover of traded, for instance, pricing ration out scarce good. This is a rise in price of good indicates that the good is in relative short supply.

Pricing can be used to discourage unnecessary pressure on some commodities, this is price serving as a mater or gauge. Price indicate the direction of want and also pricing as a means by which factors of product are awarded and as a result, many professionals in business are beginning to play major roles in pricing decision and pricing strategy formulation.

The objective of this research is to investigate whether accountants have any contribution in pricing strategy formulation with particular reference to selected manufacturing firm in Onitsha.

The problems staring the business world in face which the researcher has taken upon, herself to provide answers are:

Is pricing strategy formulation a management problem?
Does accountants have any role to play in pricing strategy formulation, if yes to what extent?
What measure can the accountant adopt in solving the problem of pricing strategy formulation since if poses across department problem.

The depth of the study is to find out answer to the above questions.

In conclusion, Since pricing strategy formulation poses inter-department problem on whose right is to take pricing decision, it was shown that accounts are important in resolution of the problem of pricing strategy formulation, in a decision making process involving consideration of company law, taxation labour agreements and trades regulation in business operations, therefore the accounts need not to be confined to financial information contained in ledger accounts only.

Chapter One

1.0 Introduction

Pricing is one of the elements of the marketing mix in any market economy, where goods and services are traded, price is the watchword. It is one variable that is crucial to both seller and buyer.

According to Kalu (1995:138) any commodity that has the capacity to satisfy human wants is said to possess utility. The power of such utility or of the goods possessing if to command other goods in the normal or regular exchange is its value.

According to Clarke (1981:79) price seller’s views pricing as the incredible three-headed monster, he went further to say that each one is independent of the other. One of the heads is concerned with marketing and views pricing as a tool for gaining entrance to the market improving market penetration and positioning product in the market.
The second head is that of the accountant who thinks solely of the units cost and contributions. This head has a fine eye for design and calculates cost for each component of every product.

While the accountant sees himself as the custodian of profit and in ever suspicions of price cutting measures of marketing. He believes that salesmen lack courage and so need to become firm if profit margins are not to be crowded.

The third-head according to him is that of micro economist. He is sometime referred to as price theorist who is devoted to the study of the determinants and dynamic of price under various market structures. He is mostly concerned with demand and supply curves and theoretical models.

In practice however, the heads ignored him completely, his literature has an air of unreality more akin to academic than to the pressing affairs of business life. The first two heads does not understand the pressured words marketing and accounting and his approach is too theoretical to be for practical use.

1.1 Statement of the Problem

The problem of this study is to investigate on the role accountants play in pricing strategy formulation in selected firms in Anambra State. Beside, this work focused on finding whether the accountants plays a vital role in pricing strategy formulation or not and if yes, to what extent is he directly involved.

According to Thompson (1981: 13), Pricing strategy can be thoughts as an interconnected web of actions, decision and plans, which are formulated and pursued by all levels of management, hierarchy in order to attain a justifiable selling price per unit of output provided by a firm.

It is glaringly clear that pricing strategy formulation poses a cross-departmental problem and is not in the background of this study. The accountant is important in resolution, is a decision problem and the accountant being involved in production relevant information for decision making has a major role to play in pricing decision. He is concern with application of his professional skill and relevant information available to him to help the management to formulate an acceptable pricing strategy, which does not, over role all objectives of the firm.

1.2 Purpose of the Study

The purpose of this study is of three fold

The study seeks to examine the role accountants play in pricing strategy formulation as this poses a cross department problem.
The study seeks to examine how accountants would fashion their accounting system in terms of allocating cost with a view to obtain a valid pricing decision.
Finally, a deficiencies or what you mean in the system will be revealed and we shall recommend measured that the problem of pricing should adopt in solving the pricing strategy formulation bearing in mind the effects of other economic and environment variables.

1.3 Objective of the Study

The objective of this study is to research on the role accountants plays in pricing strategy formulation, whether they plays a vital role in pricing strategy formulation or not and if yes, to what extent is he directly involved.

To use the application of his professional skill and relevant information available to him to help the management to formulate an acceptable pricing strategy.
Knowing the proper way of determining price setting.
To impact upon the organizations’ customers in terms of satisfaction, product performance and meeting individual and societal wants.
Having the basic method of arriving at prices is being adjusted to meet certain market condition and bearing in mind the factors that affect prices of products.

1.4 Scope of the Study

This research project covers only on some selected firms in Anambra state. Though this does not represent a good estimates of manufacturing firms but the choice has been necessitated by the location of the firm therefore, this project is only limited to the role of accountants in pricing strategy formulation.

1.5 Assumptions of the Study.

The following assumptions were made for the purposes of this study.

Skimmer S.J. (1996:59) that information needed for pricing discussion is being provided by the Accountant.
According to Baker (1984: 157) that there are only two broad strategy approaches to price which are:
1. Skinning Approach
2. Penetration Approach
– According to Kotler (1980):389) actual setting should be based on three factors cost namely.
1. Demand-Oriented Pricing
2. Cost – Oriented pricing
3. Competition-Oriented pricing
– According to Hagen, D.C. (1974:104) that before setting price, the decision makers considered the reaction of the following.
1. Distribution
2. Suppliers
3. Competitors
4. Government
5. Company Executives.
According to Kotler (1980:46) that pricing strategy formulation revolves round the following.
1. Organizational competence and resources.
2. Personal values and aspiration
3. Environmental threats
4. Societal obligation and ethical consideration.
5. Product market opportunities

1.6 Limitations Of The Study

There are many constraints to be the completion of this research work but for the purpose of this study, the following factors should be considered.
The major factor that constraints the extent of the study carried out on this project work is time factor.

1.7 Definition of Terms

Accounting:

The world “accounting” in this project means the financial or management accountant who is involved in decision making and who is assumed to be the top management level.

Competitive Market:

One could say the market is a competitive one if it has the following characteristics as was defined in economics.

The product of one seller must be identical in the opinion of the purchases to the product of other sellers.
Market participants whether buyers or sellers cannot influence individually, the market price of the product by their actions.

Economic Order Quantity (EOQ):

This is the quantity of inventory at the point where inventory ordering cost and caring cost is at minimum.

Firm:

A firm is used synonymous with company throughout the whole of this project.

Locality:

The locality here refers to Onitsha and its environment.

Price Setters:

This is referred to those who take pricing decision in a company.

Penetration:

This is an approach that is based on the assumption that if you can produce a similar product to your competitors then you will take away some or his entire market share.

Selling Price:

This is referred as the setting or unit product of a company. It is different from cost per unit of input used in production process.

Skimming:

This is recognition that in almost all markets, there is “hard core” of demand for whom the product is question has a particular importance.

Chapter Three

3.0 Summary Conclusion and Recommendation

3.1 Summary.

This research work is being carried out in order to investigate on whether accountants have any role to play in pricing strategies formulation and to know if it will yield to positive result and if it is of any significance and to be able to make far reaching revelation in this regards.

Pricing has always been a key function in business, it is not surprising that with the alarming rate at which modern business trend, more dimensions will be added to the problem of pricing. Many professionals in business are beginning to play major roles in pricing decision and one of such professionals is the accountants.

Traditionally, The accountant was regarded as an economic historian. His first interest was in calculating profit or losses of enterprises for calculating profit or losses of enterprises for past periods and in stating financial position at any point in time to enable directors render warship account to their shareholders.

This was merit able product of professional practices. The position of the accountant is different today. He is beginning more involved in decision making and aware of conventional restraints on business policy. Consideration of company law, taxation, labour agreement and trade regulations are relevant to decision making and they are stock in trade far accounting. Therefore, pricing strategy formulation is making process involving considerations of all these professional business operation including accounts.

3.2 Conclusion

The evidence and discoveries related literature in this study, point to the fact that accountants are involved in pricing strategy formulation in manufacturing firm.

It was believed that with research, manufacturing firms will now be better informed on issue regarding the role of accountants in pricing strategy formulation. More so, never to neglect or side line accountants in any management decision.

To management, the accountant should only be involved in calculation of cost or providing cost information, which may be obligated to consider or throw away.

It is therefore, felt that accountant role in manufacturing firm as regard pricing strategy formulation should be further investigated as this poses the inter departmental problem of whose right is to take pricing decision.

3.3 Recommendations

A study of this nature will be incomplete and baseless if no attempt is made at suggesting the ways of improving the role of accountants in pricing strategy formulation from the for-going discoveries the research wishes to make the following recommendations.

It is important that accountants should be centrally involved in pricing strategy formulation since they are responsible for interpretation and presentation of financial data as this is perhaps the pretest single development in Nigeria business sense.
Firms should consider all profitability, volumes and meeting competition objective when setting price on their product. This is necessary because without these objectives, the aim of the company may not be actualized.
Manufacturing firms should not adopt only cost approach when determining price. Cost oriented approach may only increase profits but not help to increase sales. It is important to consider both cost and demands and supply approaches when setting their price so as to enhance sales volume and profitability.
The accountants needs not be confirmed to financial information contained in the ledger accounts to statistical data in order than monetary terms is often as parliament in factor control and decision formulation.
The accountants should always advice the firm’s management on the techniques, to be adopted in order to optimize decision, such as budgetary techniques, breakeven and profit planning.

3.4 Areas for Further Research

Pricing policies should aim at providing reasonable stability for a company’s conduct. Price must be planned well as to avoid excessive competition from rural companies.

According to Ama (1991:17) the following have been outlined as guideline for effective pricing policies. Price should be high enough to profitable and low enough so that sales Volume will keep down the unit production cost.

If price is too high, one should price oneself out of the market loses customers and encourages potential competition to move in if price is low, losses money on business. The price is right when the producer recovers all his cost and satisfy the demand of all the parties on the business organization and then, the continuity and failure of company guaranteed. Therefore, these are the areas which the researcher did not research on as they are listed below: