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What is the cost based pricing method?
This is where the market value of a product is based purely on the cost of production at the very minimum, where as the normal pricing should factor in the projected profit.
Cost-based pricing can be defined as a pricing method in which a certain percentage of the total cost of production is added to the cost of the product to determine its selling price.
Cost-plus pricing is a cost-based pricing strategy for setting the prices of goods and services.
With cost-plus pricing you first add the direct material cost, the direct labor cost, and overhead to determine what it costs the company to offer the product or service.
A markup percentage is added to the total cost to determine the selling price. This markup percentage is profit. Thus, you need to start out with a solid and accurate understanding of all the business' costs and where those costs are coming from.
Cost based pricing is stratigy plan to determining the selling price of a product by the company, wherein the price of a product is determined by adding a profit element (percentage) in addition to the cost of making the product.
Considering all the cost (fixed / variable / opportunity ) and get the right figure which matches not only COGS but also link with fixed cost like depreciation and other admin cost.
In most of the case they keep raw material cost and add fixed delta cost on average basis to determine the value.
It depends on the industry while some industry variable cost are jumping with each products, so they have to derive a formula to calculate the same.
According to me , Cost is a Secandery only . Quality is importent to me and customer .
it is depends on productivity,transportation,wherehouse and selling is called cost based price
A company having cost based pricing method, tries to price the product based on the cost of manufacturing it, which is the cost of production, distribution and selling costs involved in making the product available to the end user.
So a fixed amount ( say fixed costs) of this whole process is added to the cost of the Product itself in an attempt to cover the manufacturing costs and other variable costs, by which a company has a certain % of amount as a margin or profit, enabling them to make a fair recovery with rate of returns for all the efforts and risks that was undertaken in presenting the final product for sale.
This way, the company is not really making use of value based pricing, which is pricing the product based on what the customers are usually willing to pay for, but playing it safe with the fair prices that covers cost while enjoying a certain added margin or profit.
It's a pricing method in which a fixed sum or percentage is added as income or profit
It´s as simple as it appears, it´s the sum of the basic cost add to the variable cost "depends on the method to calculate the variable cost" and add the percentage of profits. Notes that profits percentage vary depending on deferents factors.
Is the practice of setting prices based on the cost of the goods or services being sold, where by a fixed profit will be added to the goods / services