Topics
pricing, analysis, calculations, profitability, cost-plus, mark-up
Review the activity below or download the PDF student worksheet
Student worksheet: Price Calculation – Cost-plus Pricing
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:
- 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 |
Student Discussion 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?
Related Activities
Price Calculations – Marginal Analysis
Price Calculation – Breakeven Pricing
Price Calculation: Target Profit Pricing
