19 January 2020

ACCA PM Chapter 7 - PRICING - Introduction, Cost plus pricing

Factors influencing selling price:

  • costs
  • competitors
  • customers



Cost-plus pricing

1. Full cost plus - Full cost includes a shared overhead and also often includes non-production costs.

Advantages:

  • Easy
  • Standard Policy
  • "Guaranties" Profit


Disadvantages:

  • Ignores Competition
  • Ignores Effect of Price on Demand
  • Absorption of Fixed Overheads


2. Marginal cost plus - the marginal (or incremental) cost of producing a unit and adding a mark-up.

Advantages:

  • Easy
  • Standard Policy
  • No need to absorb Fixed Overheads


Disadvantages:

  • Ignores Competition
  • Ignores Effect of Price on Demand
  • What % to add to make sure Fixed Overheads covered?


3. Opportunity cost plus - a marginal cost approach but also includes within the cost any opportunities foregone. It is a relevant costing approach.



Source: https://opentuition.com/acca/pm/acca-performance-management-pm-lectures/

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