Because this method uses only the high and low activity levels to calculate the variable and fixed costs, it may be misleading if the activity levels are not representative of the normal activity, i.
Pricing new products is a problem as the firm is not having any past cost experience. A processor of pie fillings has segmented its customer groups by the amount of volume consumed. A break even point is that level of production at which the total sales revenue TR equals the total cost TC.
Factor of place is the determinant of price in such situation. Though, no firm can afford to disregard cost and demand factors in pricing, it gives major attention to positioning its prices just relative to the prices of its competitors.
Once costs are calculated, use one of these three cost-based pricing methods. Helps in achieving the required rate of return on investment done for a product. Follow these tips to ensure greater pricing success. The rate of profit margin vary from industry to industry and seller to seller. Cost based pricing does not penalize the inefficiency that is creeping in.
Effective pricing requires creativity, research, good recordkeeping and flexibility. Say, if the product costs have shot-up by work stoppages, material wastage reduced output, all are covered as a part of total cost.
However, it is often hard to visualize the cost equation line through the data points, especially if the data is varied. In different places, the similar products can be sold at different prices. Level of the knowledge of product features also affect the price paid by the customer.
Intensity of their demand for the product would also be different.
For example, market segments could group customers by income level, age, geography, amount of product consumed, etc.
Give customers a volume discount for multiple purchases: It is to be noted that as the production increases the fixed cost reduce. A break-even analysis is used to calculate planned-profit pricing.
A break even analysis relates to total cost to total revenue. In such causes, this technique is useless. It can deliver high- quality products at low prices by improving its research and development process. At what price do your customers think your product offers good value? Therefore, the firm may charge the same, more or less than the major competitor or competitors.
It Moves with New technology: Disadvantages of competition-based pricing Pricing that matches your competition may not be based on your ideal target profit and may not allow you to cover your costs.
As you gain more customers and sell more product, some of your costs will decrease because of economies of scale, thus increasing your profit over time. Advantages of competition-based pricing Pricing the same as your competition makes calculating your price easier. However, in this type of pricing, the prices set by the market leaders are followed by all the organizations in the industry.
Hotels charge different amount for different seasons. Therefore, the unit selling price will be of Rs. The following exhibit makes this concept very clear: Ignores Demand and Competition:Some of the methods of Price Determination for a product are as follows: A. Cost Based Pricing Methods: Costs establish the floor for the possible price range and there are two commonly used costs oriented pricing methods to set the product prices.
Selected Answer: Learning-curve analysis Correct Answer: Learning-curve analysis Question 5 3 out of 3 points Which of the following types of price determination methods uses the price of producing and marketing the product as the basis for determining price?95%(22).
If a fair and reasonable price cannot be established by the contracting officer from the analyses of the data obtained or submitted to date, the contracting officer shall require the submission of additional data sufficient for the contracting officer to support the determination of the fair and reasonable price.
Methods to Determine Price Reasonableness 1. INTRODUCTION: The most basic reason for requiring that price or cost analyses be performed and documented is that it is a sound business practice. This, as noted above, insures that funds are expended in the most cost effective manner and conserves limited resources.
A determination that a. The price control of a material determines whether the material is valuated at the standard price, the periodic unit price, or the moving average price. The Price determination indicator in the material master determines whether price determination is: Not an option as the valuation price of the.
The following graphic illustrates this allocation process. Observe that if $1 less is allocated to ending inventory, then $1 more flows into cost of goods sold (and vice versa). Further, as cost of goods sold is increased or decreased, there is .Download