Cost Based Pricing

Question 1

4 C’s of Pricing

Answer 1

-Cost
-Competition
- Customers
- Corporate Strategy

Question 2

Advantages and disadvantages of using absorption costing when pricing

Answer 2

Selling Price = Full cost per unit X (1 + % mark up)
Smaller mark up than marginal costing

Pros
- insures all production costs are covered
- Can be used to justify price rises

Cons
- Ignore customers and competitors
- Doesn’t reflect the incremental cost of new orders

Question 3

Advantages and disadvantages of using marginal costing for pricing

Answer 3

Selling Price = Full cost per unit X (1 + % mark up)
Bigger mark up than absorption costing

Pros
- Useful for incremental orders
- avoids not accurate overhead allocations

Cons
- Ignores customers and competitors
- Doesn’t cover all costs in the long run