MSU HB 302 - Final Exam Study Guide (8 pages)

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Final Exam Study Guide



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Final Exam Study Guide

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Details Chapters 8 and 10 from Hospitality Industry Managerial Accounting as well as lecture notes from Schmidgall's lectures.


Pages:
8
Type:
Study Guide
School:
Michigan State University
Course:
Hb 302 - Hospitality Managerial Acct
Hospitality Managerial Acct Documents

Unformatted text preview:

HB 302 Exam 4 Study Guide Importance of Pricing Major Determinant of profitability is prices Prices too low mean not maximizing revenue too high means won t achieve potential for profits Management s goal Profit Maximization Another factor is positioning within marketplace Profits occur from calculated decisions Price Elasticity of Demand Measures how sensitive demand is to change in price Demand characterized as elastic or inelastic Price elasticity of demand formula o Change in Quantity Demanded Base Quantity Demanded Change in Price Base Price Equation will almost always yield negative number however negative sign is usually ignored If inelasticity of demand is greater than 1 demand is said to be elastic sensitive to price changes If less than 1 demand is inelastic not sensitive to price changes When prices increase of reduction in quantity demanded is less than the of price increases therefore revenues will often increase Generally speaking demand for products services in hospitality is elastic Informal Pricing Approaches Several forms of informal pricing Intuition psychological and trial and error Intuition Based on what manager feels the customer is going to pay Psychological pricing Prices established on basis of what the guest expect to pay Trial and error monitors guest reactions adjusts price based on this All of these methods are best when supplemented with more calculated approaches to pricing Cost Approaches Four Modifying Factors Historical prices perceived price value relationships competition price rounding are all based on cost approach to pricing Have to take into account price changes customer value competition modifying price Markup Approaches to Pricing Designed to cover all non product costs labor utilities ext Two types are ingredient markup product costs and prime ingredient markup cost of major ingredient Four Steps of Ingredient Cost Approach 1 Determine Ingredient Costs 2 Determine the multiple to use in marking up ingredient costs a



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