What question did this study set out to answer?

The research aims to empirically test Lere's theory of product pricing, focusing on the role of accounting costs.

March 18, 2026The Accounting Review0 citations

Product Pricing, Accounting Costs and Use of Product-Costing System.

RHRonald W. Hilton RSRobert J. Swieringa MTMartha J. Turner

Key Points

The research aims to empirically test Lere's theory of product pricing, focusing on the role of accounting costs.
Conducted an experiment based on Lere's theory
Examined pricing strategies used by firms
Analyzed decision-making processes involving accounting costs
Findings suggest firms primarily use cost-based pricing strategies
Evidence supports reliance on absorption costing rather than profit-maximizing pricing
Demonstrates a disconnect between economic theory and practical pricing methods

Abstract

Abstract The economic theory of the firm suggests that a profit-maximizing product price may be determined by equating marginal cost and marginal revenue. Yet recent surveys suggest that most firms use cost-based pricing strategies where product costs are determined using absorption costing. Lere 1986 has drawn upon the economic theory of the firm, as well as extensive work on heuristic decision processes, to develop an empirically testable theory of product pricing based on accounting costs. This paper reports the results of an experiment in which Lere's theory was empirically tested.

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