CHAPTER 2

REVIEW OF RELATED LITERATURE

This chapter would consists of local and foreign related literature and studies in connection with the
researchers chosen topic. The information gathered are mostly from the books and the internet. In
accordance with this chapter’s purpose and the studies that would be mentioned afterwards, it benefits
the researchers to have a clearer point in order to support the topic and to establish some sort of rule
that the researchers will follow in the whole process of doing this study.

FOREIGN LITERATURE

Many factors affect the amount of the income statement like changes in depreciation method, inventory
valuation procedures, and so on, but “cash is cash”. Management can’t interfere with their cash flow
statement but Diya Gullapali refutes because an article shows that Ford, General Motors and several
other companies overstated their operating cash flows, the most important section of the cash flow
statement.

After gathering and analyzing data the researchers received from the company, they have observed that
the composition of the statement of cash flows is not that favorable for the company. This is one of the
factors the researchers came up with the topic.

As stated in a literature review from the internet; ‘Customers and determination of price is necessary for
every organization. As this both customers and price have a high relation to the demand for products.
Even there is a small increase in price levels it will highly affect the demand for the product and the
organization profit.’

‘Price is a highly sensitive factor of an organization. The standard economic analysis of pricing is based
on the customers desire for the product its usually depends up on the income of the customer and other
factors like ethnic origin. There are some consumers may pay high prices, while others willing to pay
only lower prices. Instead of charging same price to all, the organization decided to charge different
price for different customers as it will increase the business profit. This method of pricing is known as
price differentiation.’

Pricing strategy is needed for a company to be successful. Pricing decisions can influence a customers’
purchasing behavior and on financial performance. A company could plan more deliberately for the
chance of having more calculated risks. Efficient performance is achieved through effective pricing
because it has an influence in the earnings.

LOCAL LITERATURE

As stated in the book ‘Management Accounting: Concepts and Applications’ 2017 edition by Ma. Elenita
Balatbat Cabrera & Gilbert Anthony B. Cabrera; A. Fixed costs are costs that remain constant in total
regardless of changes in the level of activity within the relevant range but could be changed due to
outside factors, such as price changes. B. Cost- plus pricing is the most basic approach in pricing
decisions, the price of the service should cover all costs that are traceable to the service, variable as well
as fixed. C. All services must assist in covering the common costs of the organization. These common
costs may include general factory, selling and administrative costs.

RELATED STUDIES

The researchers, Guerreiro, Cornachione, Kassai discussed about the relevance of pricing and cost to the
overall profitability of the company. “Product price planning is fundamental to compliance with strategic
organizational guidelines and the achievement of business objectives. Tung et al. (1997) noted that the
fastest and most effective way for a company to reach maximum profits is by being able to correctly
establish its price.”

They also mentioned in their study about the plans in regards to an advantageous pricing, the relation of
determining price to the expected profit and lastly how the pricing of a company depends on the
changes in the market. “Since decades ago, many studies have investigated various aspects of price
planning (Shipley, 1981; Ratnatunga, 1985; Ratnatunga, 1987; Jobber and Hooley, 1987; Ratnatunga,
et.al., 1994). Shipley (1981) studied British manufacturing firms and a general finding was that pricing
and profit objectives vary to a greater extent and more systematically with firm size than with number
of competitors. A similar study was carried out by Jobber and Hooley (1987) who analyzed the relative
importance of various price objectives in British companies and demonstrated that concern for profit
was the main motivating factor when establishing prices. The study did, however, show that price
objectives varied according to the evolutionary stage of the market in which the companies were
operating.”

REFERENCES

Foreign Literature:

2005 Article in the Wall Street Journal (“Little Campus Lab Shakes Big Firms”)

https://www.ukessays.com/essays/marketing/pricing-strategy.php

Related Studies

https://pdfs.semanticscholar.org/84ef/a74893053391d6d62d53e8e419a052ca5172.pdf