PRICING RELATED CALCULATIONS

# PRICING RELATED CALCULATIONS - 1 PRICING RELATED...

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PRICING RELATED CALCULATIONS COMM 224 –DR. K. BUYUKKURT A) COST-PLUS PRICING (MARKUP PRICING) Cost-plus, also called markup pricing, involves simply adding a standard markup to the unit cost of the product. The markup is usually defined as a percentage of the price. In such cases, ) 1 ( _ MARKUP COST UNIT PRICE - = . Assume that the total unit cost of your product is \$16, and you want to determine your price such that you will have a markup (profit) of 20 percent. So, what should your price be? 20 \$ ) 2 . 0 1 ( 16 \$ = - = PRICE Sometimes you may need to compute the unit cost for your product by taking into account your total fixed costs and variable cost per unit. See Slide 10 of Class Notes for Chapter 11 for an example. C) BREAK-EVEN VOLUME: By definition, at break even total revenue (TR) equals total cost (TC). That is TR = TC We also know that total cost is simply the sum of total fixed cost (TFC) and total variable cost (TVC). So, TR = TFC + TVC= TFC + (VC x Q) Where VC is variable cost per unit and Q is the total volume (number of units that are produced and sold).

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