1. (a) What is cost-plus pricing? Briefly describe the methods of determining sales prices under cost-plus pricing? 4
(b) Differentiate the mark-up and margin with an example. 2
A
Cost-plus pricing:
Cost is the most important influences on price of a product or services. Cost-plus pricing means the determinations of sales price by calculating the cost of product or services and then adding a percentage mark-up for profit.
There are two methods of cost-plus pricing and these are as follows:
I. Full cost-plus pricing: where pricing is determined based on full cost of the product or service and adding a percentage mark-up. The full cost may be a fully absorbed production cost only, or it may include the portion of absorbed selling and distribution overheads.
ii. Marginal cost-plus pricing: involves adding a profit mark-up to the marginal or variable cost of production or sales.
(b) Differentiate the mark-up and margin with an example. 2
A
Cost-plus pricing:
Cost is the most important influences on price of a product or services. Cost-plus pricing means the determinations of sales price by calculating the cost of product or services and then adding a percentage mark-up for profit.
There are two methods of cost-plus pricing and these are as follows:
I. Full cost-plus pricing: where pricing is determined based on full cost of the product or service and adding a percentage mark-up. The full cost may be a fully absorbed production cost only, or it may include the portion of absorbed selling and distribution overheads.
ii. Marginal cost-plus pricing: involves adding a profit mark-up to the marginal or variable cost of production or sales.
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