Cost-Plus Pricing Homework Help for a Clear Concept and Knowing Its Limitations
Cost and pricing both are easy to understand for a student but one needs to understand their relationship to one another in a clear way. Our cost-plus pricing homework help experts try to make a student understand it in a much detailed account. We at myhomeworkhelp.com try to make studies easy by clearing concepts and providing assistance when a student faces some dilemma with an assignment or homework.
Cost plus pricing
It is a method based on the cost for setting prices of products and services. In this approach, the cost of direct materials, the cost of direct labor and a product’s overhead costs are added together. A certain markup percentage is added to it for deriving price of that particular product. Markup percentage is added for creating a profit margin.
Advantages and disadvantages of cost plus pricing
This approach has both advantages and disadvantages. Both are discussed below in brief in order to give you a clear picture of Cost plus Pricing. So without waiting anymore let’s go through the advantages first then the disadvantages. More details can be found on our cost-plus pricing assignment help.
Advantages of cost plus pricing
The points below show the advantage of this approach:
- First of all, it is simple. This approach is easy for deriving price of a product though one needs to define method of overhead allocation for having a consistency in calculation of multiple commodities’ prices.
- Profit is assured when a contractor makes a contractual agreement with any customer. No risk of losing on a contract like this as it assures costs reimbursement and also making a profit on it.It is known as assured profits through contract.
- This method is justifiable. In certain cases, a supplier has to persuade a customer about the need for an increase in price of the product. In a case like this, the supplier can show the increase in the cost of the price increase of the product.
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Disadvantages of cost plus pricing
The points below show the disadvantage of this approach:
- Competition is ignored in this method. A firm might sight price of the product based on this formula but later finds competitors are charging different prices. The makes the firm either charging prices too low for the product which cuts into their potential profit or too high pricing which achieves minor revenues.
- Overrun of product cost as design made by the department is what is wanted rather than what its target market.
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