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Questions and Answers
What is the primary goal of Break-Even Pricing?
What is the unit cost in the Cost-Plus Pricing example?
What is the markup price in the Cost-Plus Pricing example?
What is the variable cost in the Cost-Plus Pricing example?
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What is the fixed cost in the Cost-Plus Pricing example?
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What is the break-even volume in the Break-Even Pricing example?
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What is the price in the Break-Even Pricing example?
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What is the purpose of Cost-Based Pricing?
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What is the formula to calculate the unit cost in Cost-Plus Pricing?
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What is the formula to calculate the markup price in Cost-Plus Pricing?
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Study Notes
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
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Description
This quiz question is about calculating the markup price given the variable cost, fixed costs, expected unit sales, and unit cost.
