Price Calculation: Cost-plus Pricing

Topics

pricing, analysis, calculations, profitability, cost-plus, mark-up


Review the activity below or download the PDF student worksheet


Student Discussion Activity

Cost-plus pricing is a very simple form of pricing – probably the simplest approach. This approach was once fairly common, but is less widespread today, except perhaps in large retailing chains.

Your task for this activity is to work through the following two examples to gain a better understanding of this approach.

Using cost-plus pricing to:

  1. Set the price if you expect to sell 1,000 units and you want a 50% mark-up:
  1. 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

Student Discussion Questions

  1. Start by completing the above table.
  2. For which types of business would this pricing approach be the most suitable?
  3. What concerns would you have with using this pricing approach?

Related Activities

What Price Mark-up is Needed?

Price Calculations – Marginal Analysis

Price Calculation – Breakeven Pricing

Price Calculation: Target Profit Pricing