Cost-Based Pricing Assignment Help
BookMyEssay is providing top class Cost-based Pricing assignment help to the students learning the process of determining cost-based pricing and facing complicated assignments on the subject.
Cost-based pricing is a product pricing method mainly for the market-based products that includes calculating the cost of the product and then adding the anticipated profit percentage to determine the maximum selling retail price. This is the most used and easiest way of determining the selling price of the product. Students in cost accounting, commerce, accounting, marketing, etc. are required to learn and apply cost-based pricing method in the different business environment.
Key aspects of Cost-based pricing
Experts consider cost-based pricing as the easiest process of calculating the price of a product. Cost-based pricing has two forms:
- Full cost pricing – This takes into account variable costs and fixed costs of production and then fixes a % markup to determine the price of the product.
- Direct-cost pricing – Here, only variable costs are considered and then added up with a % markup to determine the market price.
The cost-based pricing process used by the companies to capitalize on their profits. The companies achieve their target of profit maximization by growing their manufacturing output until marginal revenue equals marginal cost, and then fixing a retail price as per the demand for the products. Cost-based pricing method is easy to adopt and maintain, so many companies with not much complexity in their production process adopt this method of pricing.
An example will clear the matter:
Total cost of product = total fixed cost + total variable cost
= $ 300 + $ 100 = $ 400
Profit margin decided by the company (Markup) = 25%
Selling price = Total cost of production + profit margin
= 400 + 400 (25/100)
= $ 500
This $ 500 will be price floor means the minimum market price of the product. On the other hand, the company can also fix another price higher than this one, called price ceiling depending on the market demand and competition in the market. This is how Cost based pricing works in a typical business.
In an assignment, the professor will provide different costings, you have to determine the fixed and variable costs, what amount of fixed costs you can charge, what percentage of the cost will be added as profit, etc. to determine the market price of the product.
Advantages and Disadvantages of Cost-Based Pricing
Following are the major advantages of applying cost-based pricing:
- It is the quite straightforward approach to determining the cost.
- It ensures that all variable costs that include the direct cost of production and overhead recurring costs are calculated.
- The process adds the profit in a simple way which is simple to maintain and the rates are quite consistent.
- If the selling price is fixed beforehand, it can calculate the maximum cost of production that can be allowed and daily output limit.
- Determining the selling cost of a customized product is easy with this method.
There are some disadvantages too:
- The pricing process, if not full-proof, may lead to underpricing or overpricing. Both of which are not good in a highly competitive market.
- The process may sometime ignore the opportunity cost of investment.
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