cost-plus pricing

• Cost-plus Pricing

https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html

Cost accounting Lean accounting

1 Lean Accounting does not require the traditional management accounting

methods like standard costing, activity-based costing, variance

reporting, cost-plus pricing, complex transactional control systems, and

untimely & confusing financial reports


Cost Cost estimation

1 Cost-plus pricing, is where the price equals cost plus a percentage of overhead or profit

margin.


Pricing - Elements of pricing

1 How to set the price?: (fixed pricing, cost-plus pricing, demand-based or value-based pricing, rate of return

pricing, or competitor indexing)


Retail - Retail pricing

1 The pricing technique used by most retailers is cost-plus pricing. This

involves adding a markup amount (or percentage) to the retailer's cost.

Another common technique is suggested retail pricing. This simply

involves charging the amount suggested by the manufacturer and usually printed on the product by the

manufacturer.https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html

Retailer - Retail pricing

1 The pricing technique used by most retailers is cost-plus pricing. This involves

adding a markup (business)|markup amount (or percentage) to the retailer's

cost. Another common technique is suggested retail price|suggested retail

pricing. This simply involves charging the amount suggested by the manufacturer

and usually printed on the product (business)|product by the manufacturer.


Management consulting - Revenue model

1 Traditionally, the consulting industry charged on a Cost-plus pricing|time and materials basis, billing for staff consultants based upon the hours

worked plus out-of-pocket expenses such as travel costs


Production, costs, and pricing - Concepts

1 ***cost-plus pricing with elasticity considerations


Steve Keen - Critique of neoclassical theory of the firm

1 Keen's work (as opposed to his popularization) has also focused on refuting

the neoclassical theory of the firm, which argues that firms will set marginal revenue

equal to marginal cost. Keen notes that empirical research finds real firms set price

well above marginal cost: they charge a Markup (business)|markup, often cost-plus

pricing; compare fellow post-Keynesian Alfred Eichner, who also argued for markup

pricing.https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html

List of marketing topics - Pricing

1 ** Cost-plus pricing with elasticity considerations


Shopping - Pricing and negotiation

1 The pricing technique used by most retailers is cost-plus pricing. This involves

adding a markup (business)|markup amount (or percentage) to the retailers'

cost. Another common technique is suggested retail price|manufacturers

suggested list pricing. This simply involves charging the amount suggested by the

manufacturer and usually printed on the product (business)|product by the

manufacturer.https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html

Lean accounting - Introduction

1 Lean Accounting does not require the traditional management accounting

methods like standard costing, activity-based costing, variance

reporting, cost-plus pricing, complex transactional control systems, and

untimely confusing financial reports


Lean accounting - Value-based pricing

1 This approach is in stark contrast to many traditional companies that

calculate their prices using the Cost-plus pricing|cost-plus method


Cost-plus pricing

1 'Cost-plus pricing' is a pricing strategies|pricing strategy that is

used to maximize the rates of return of companies.


Cost-plus pricing

1 Firms may achieve profit maximization by increasing their production until their marginal

revenue equals their marginal cost, then charging a price determined by the demand curve. In practice, most firms use either value-based pricing or cost-plus pricing. Cost-plus pricing

is also known as mark-up pricing where cost + mark-up = selling

price.https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html

Cost-plus pricing

1 There are several variations of cost-plus pricing, but the most common method is to calculate the cost of the product, then add a percentage of the cost as markup (business)|markup. This approach sets prices that cover the cost of production and provide sufficient profit margin for

the firm to reach its target rate of return. It also provides a way for companies to

calculate how much profit they will make.


Cost-plus pricing

1 Cost-plus pricing is often used on government contracts (cost-plus contracts)

and has been criticized as promoting wasteful expenditures in the form of direct

costs, indirect costs, and fixed costs whether related to the production and sale

of the product or service or not. These costs are converted to per-unit costs for the

product; then a predetermined percentage of these costs is added to provide a profit

margin.https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html

Cost-plus pricing

1 Therefore, cost-plus pricing is often considered the most rational

approach to maximizing profits due to the ease of its calculation and lack

of any additional information


Cost-plus pricing - Mechanics of cost-plus pricing

1 In cost-plus pricing we use quantity to calculate price and price

determines quantity. To avoid this problem, a quantity is assumed. This

rate of output is based on some percentage of the firm's capacity.


Cost-plus pricing - Reasons for wide use

1 Firms vary greatly in size, product range, product characteristics, and

so on. Firms also face different degrees of competition in markets for

their products. Therefore, a clear explanation cannot be given for the widespread use of cost-plus pricing. However the following points explain

why this approach is widely used:



1 * This approach reduces the cost of decision-making. Firms preferring stability use cost-plus pricing as a

guide for pricing products in an uncertain market where knowledge is

incomplete.



1 * Firms are never too sure about the shape of their demand curve, nor are

they very sure about the probable response to any price change. It becomes risky for a firm to move

away from cost-plus pricing.



1 * Unknown reaction of rivals to the set price is a major uncertainty. When product and production

process are similar, competitive stability is achieved by using cost-

plus pricing. This competitive stability is achieved by setting a price likely to yield acceptable

returns to other members of the industry.


Cost-plus pricing - Usefulness

1 Cost-plus pricing is especially useful in the

following cases:


Cost-plus pricing - Usefulness

1 * One buyer, many sellers: cost-plus pricing is useful in cases like

monopsony buying. In this situation, the buyers have enough knowledge about supply chain|suppliers' costs. Thus, they may make the product

themselves if they do not agree with the offered prices. The relevant cost

would be the cost which a buying company would incur if it made the

product itself.https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html

Cost-plus pricing - Disadvantages

1 * Calculation of costs is complex and depends on asset valuation, thus offering scope for disguising what may essentially be value-based

pricing as cost-plus pricing


Cost-plus pricing - Cost-plus pricing and economic theory

1 Cost-plus pricing is based on average costs and not marginal

costs


Cost-plus pricing - Cost-plus pricing and economic theory

1 If the mark-up over cost is based on demand, cost-plus pricing may not

be inconsistent with profit maximization.


Target pricing

1 In the traditional cost-plus pricing method, materials, labor and

overhead costs are measured and a desired profit is added to determine

the selling price.


Value-based pricing

1 The approach is most successful when products are sold based on emotions

(fashion), in niche markets, in shortages (e.g. drinks at open air festival at a hot summer

day) or for indispensable add-ons (e.g. printer cartridges, headsets for cell phones). Goods that are very intensely traded (e.g. oil and other commodities) or that are sold to

highly sophisticated customers in large markets (e.g. automotive industry) usually

are sold using cost-plus pricing.


William C. Durant - General Motors

1 Durant and Samuel McLaughlin of Canada signed a 15-year contract to build Buick powertrains at Cost-plus pricing|cost plus; they were called

McLaughlin until 1942


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cost-plus pricing

Documents

markup pricing

prici pricing

pricing concepts

fixed pricing

list pricing

retailers cost

valuebased pricing

rate of return pricing