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Discussing the Statements What Are Related to Critical Accounting

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It is quite important to note that if a product costs a company $10 to produce, and the product is not creating demand, the company will gradually lower the selling price from a retail value to the eventual cost of production.   The expected retail value may be $50 when the production cost was only $10. If the company is not moving the product, the company may choose to sell the product for $10 to simply break even.   This is necessary in times of economic depression and with products that do not create a heavy demand.   In other words, it is not bad business to ultimately sell a product for the cost of production when no other options are present.   This will prevent dollar loss in the production of a product that is simply not selling.   “ According to economic theory, profit is maximized where total cost equals total revenue. ”   This is true but depends entirely on the product.   Many times, a product can be produced for an extremely low price but sold with a 1000% mark up.   This is the case in fashion jewellery for example.   It is very cheap to make, under $1.00.  From there, they are marked up to as much as $10 or so.   The product may only be plastic or acrylic and therefore quite cheap to make.   Considering the cost of production as low and factoring in the cost of labor, the overhead for this type of product is incredibly low.   This allows for a large amount of profit.   It is crucial to establish a reasonable overhead budget that allows for quality as well as low production cost.   Many companies are forced to settle for products that are not of high quality in order to maintain a low cost and therefore a higher margin of profit.   Again, products like plastic jewellery or trinkets are always going to have a low production cost but in addition, customers may be returning the products to the stores more frequently.   Also, a company will end up “ eating” the production and revenue costs due to damaged products that are never.   Price skimming is charging low prices for output until you have a good share of the market and then putting up your prices. ”    

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