Can an Organization Maximize Output by Raising the Output Price.

Maximizing Profits

Although many non accounting employees may feel that the only way to maximize profit is through increasing the output price. According to Atrill & McLaney (2012) this may not be true because the price is what governs the need for an individual to buy a product this will be used also in determining whether the product is a necessity or a luxury. Once the customer has been affected by the price profit will not be maximized due to two reasons firstly the customer may decide that the product is a luxury and therefore will reduce quantity or not buy completely or the second reason the customer may opt for a less expensive competitive product with the same properties. Therefore it is important for an organization to price its products competitively. Atrill & McLaney (2012) states that traditionally the pricing of commodities was done by an accountant putting together the direct costs (i.e. the cost of labor, raw materials and processing and operational costs) with the indirect costs (i.e. maintenance of the machinery). Direct costs are those that can be easily quantified while indirect costs are costs that are incurred but not directly associated to the job thus leading to the term Job costing which is the cost of having a job done. Atrill & McLaney (2012) say that the shift in pricing is now towards being based upon the machinery production, indirect costs and also the impacts of globalization which there are so many products in the market and therefore now playing a key role in pricing. Organizations are forced to now do competitor analysis especially in terms of quality and price and to try seek less expensive raw material and other resources to cater for the reduces price. New cost management systems are being implemented, for example the Activity based costing (ABC) which focuses on tracing the costs of supporting activities like material handling, storing and purchasing which make up the indirect costs which were not important traditionally as the direct costs. According to Kaplan & Cooper (1998) activity based costing plays a key role in that it helps the employees to make linkages between activities that they can control and meet the companies goals of reducing costs and improving product quality. According to Kaplan & Cooper (1998) the management accountant can use ABC to point out the processes where the employee should direct his or her efforts to improve efficiency, quality and responsiveness. The management accountant needs to identify the employee capable of using this knowledge effectively to reduce the costs of an activity. Therefore profits are not reduced through maximizing on the output price but in reducing the activity based costs such as overheads. When I worked for Delta Beverages in Zimbabwe after its major share holder South African Breweries took over they introduced the manufacturing way which was aimed at reducing the relatives costs of utilities such as electricity, water and chemicals used for cleaning bottles. Costs that were also included were those labor which