One of the main competitive moves observed in the last two decades was the change in product pricing, evolving from a cost plus margin paradigm to a market-driven one. In the present days, the customer defines how much he or she is willing to pay for a given product or service. As a result, traditional cost accounting procedures and their related pricing formulas cannot accommodate that kind of change without significant turnaround in practices and concepts. Taking that into consideration, this paper proposes a procedure tool based on the contribution margin concept as well as on cutting process economic analysis to be applied to small and medium size (SMS) machining service companies. To improve the reader's comprehension, a numerical simulation is also presented. All the figures have been calculated taking into account the Brazilian currency (Reais). At this moment (2009), the exchange rate is approximately R$2.40 to US$1.00. The numerical simulation presented herein was developed mainly to allow the reader to follow the proposed procedure and not to consider the numeric results as actual data.
cutting process; contribution margin; sales price
