CH5: Pricing Calculations

1. MarK up

1.1. Where the 'Kost' is equal to 100%

1.2. Sales price: 120% Kost:100% Profit: 20%

2. Margin

2.1. Where sales price is equal to 100%

2.2. Sales price: 100% Kost:80% Profit: 20%

3. Transfer Pricing

3.1. Market Price- Best to use (In perfectly competitive market)

3.2. Cost plus pricing: Usually no external market and leads to sub optimal decision making

3.3. Two part Price: Separation of fixed and variable costs.

3.4. Dual Pricing: Supplier receives market price Receiver pays variable cost Both divisions are content (but hard to administer)

4. Full cost - plus pricing (Based on total cost OR on total production cost)

4.1. Very easy to calculate and quick

4.2. Does not incentivise cost control

4.3. It does take not take into account that demand may influence selling price

5. Marginal cost pricing (Based on variable costs only)

5.1. Simple method to use

5.2. Avoids random apportionment of overheads

5.3. Does not factor FC in pricing, so they may not be covered in the long term

5.4. Does not take into account that demand may influence selling price