- 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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