_markup_price_calculation

Cost-Based Pricing

• Cost-based pricing: determines the total cost of producing one unit of a product (fixed cost + variable cost) and adds expected profit
• Markup: an amount a seller adds to the cost of the product to get the selling price
• Formula: Markup Price = (1 - Desired Return on Sales)

Break-Even Analysis

• Break-even analysis: calculates the number of units that must be sold to break even on the cost of making and marketing a product
• Formula: Break-Even Volume = Fixed Costs / (Price - Variable Cost)

Types of Costs

• Fixed Costs: costs that do not vary with production or sales level
• Variable Costs: costs that vary directly with the level of production
• Total Costs: the sum of fixed and variable costs for any given level of production

Demand-Based Pricing

• Demand-based pricing: based on the level of customer demand for the product
• Higher price when demand is strong, lower price when demand is weak

Competition-Based Pricing

• Competition-based pricing: based on meeting the challenge of competitors' prices in markets
• Must include information specified by federal regulations, such as brand name, package size, ingredient contents, and more