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Cost-based pricing focuses on what it costs to manufacture the product and the price necessary to both recoup the company’s investment and achieve a desired return on its investment. Cost-based pricing involves determining all the fixed and variable costs associated with a product or service. After the total costs attributable to the product or service have been determined, managers add a desired profit margin percentage to each unit. The goal of the cost-oriented approach is to cover all costs incurred in producing or delivering products or services and to achieve a targeted level of profit. Cost-based pricing is used in a market where there is product differentiation, such as automobile manufacturing and/or when a company is providing a unique product or service. A made to order, state of the art application is a unique product. Furthermore, determining the full cost of the custom order would not be difficult, since the volume of the order would be known. There would be development costs for a made-to-order, state-of-the-art application that the computer component manufacturer would need to be sure of covering, because those are costs that would not exist if the order is not accepted. So calculating the full cost and adding a desired profit margin percentage to the order would be a reasonable way of approaching the pricing decision to avoid having a loss on the order.
Cost-based pricing focuses on what it costs to manufacture the product and the price necessary to both recoup the company's investment and achieve a desired return on its investment. Cost-based pricing involves determining all the fixed and variable costs associated with a product or service. After the total costs attributable to the product or service have been determined, managers add a desired profit margin percentage to each unit. The goal of the cost-oriented approach is to cover all costs incurred in producing or delivering products or services and to achieve a targeted level of profit. Cost-based pricing is used in a market where there is product differentiation, such as automobile manufacturing and/or when a company is providing a unique product or service. This is not one of those situations though, because the equipment is a standard model.
Cost-based pricing focuses on what it costs to manufacture the product and the price necessary to both recoup the company's investment and achieve a desired return on its investment. Cost-based pricing involves determining all the fixed and variable costs associated with a product or service. After the total costs attributable to the product or service have been determined, managers add a desired profit margin percentage to each unit. The goal of the cost-oriented approach is to cover all costs incurred in producing or delivering products or services and to achieve a targeted level of profit. Cost-based pricing is used in a market where there is product differentiation, such as automobile manufacturing and/or when a company is providing a unique product or service. Cost-based pricing would not be the best method of setting a price in this situation. There is nothing unique about copy paper. Furthermore, it can be very difficult to determine a unit's cost before its price because unit costs may vary depending on volume. Since the mass merchandiser is a new customer and its volume is unknown, the manufacturer's full cost per carton of paper would also be unknown. Furthermore, there are many other factors that should be considered. To win a new customer that may turn out to be a very good account, pricing should be competitive.
Cost-based pricing focuses on what it costs to manufacture the product and the price necessary to both recoup the company's investment and achieve a desired return on its investment. Cost-based pricing involves determining all the fixed and variable costs associated with a product or service. After the total costs attributable to the product or service have been determined, managers add a desired profit margin percentage to each unit. The goal of the cost-oriented approach is to cover all costs incurred in producing or delivering products or services and to achieve a targeted level of profit. Cost-based pricing is used in a market where there is product differentiation, such as automobile manufacturing and/or when a company is providing a unique product or service. Computer components are standard, so this is not a situation where there is product differentiation.