Cost-plus pricing is a very simple form of pricing. This approach was once fairly common, but is less widespread today. Your task for this activity is to work through the following two examples to gain a better understanding of this approach.
ACTIVITY/TASK
Using cost-plus pricing to:
- Set the price if you expect to sell 1,000 units and you want a 50% mark-up:
- Set the price if you expect to sell 2,000 units and you want a 33% mark-up:
|
No. of Units |
Allocated Fixed Costs |
Variable Cost/Unit |
Total Production Cost |
Average Unit Cost
|
Unit Price
|
Total Sales Revenue |
Gross Profit |
|
500 |
$10,000 |
$10 |
|||||
|
1,000 |
$10,000 |
$10 |
|||||
|
1,500 |
$10,000 |
$10 |
|||||
|
2.000 |
$10,000 |
$10 |
|||||
|
2,500 |
$10,000 |
$10 |
QUESTIONS
- Start by completing the above table.
- For which types of business would this pricing approach be the most suitable?
- What concerns would you have with using this pricing approach?