Price_Setting_350_Notes_Apr_09

Price_Setting_350_Notes_Apr_09 - Pricing Fundamentals Cost...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
Pricing Fundamentals
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Cost Pricing Strategies 1. Markup 2. Average Cost 3. Experience Curve 4. Target Return 5. Break-Even Analysis 6. Marginal Analysis
Background image of page 2
Markup Pricing Resellers set prices by using a markup Markup => a dollar amount added to the cost of a product to reach the selling price Markup (percent) is based on selling price
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Markup Pricing (continued) Resellers often use a std markup percent, apply it to all products A standard markup is acceptable: (a) covers the firm’s operating expenses (b) provides a reasonable profit
Background image of page 4
Markup: Algebraic Method ♠ Manufacturer => Fix-It Tools (power drill) Key Issue: Since we use a 10% markup, what is the cost of the drill to the wholesaler?
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Markup: Algebraic Method (cont) Solve for both x and y: cost + markup = selling price (Equation 1) 21.60 + x = y percent*selling price = markup (Equation 2) .10y = x
Background image of page 6
Markup: Algebraic Method (cont) Substitute y for x: 21.60 + .10y = y 21.60 = .90y y = 24, x = 2.40
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Markup: Ratio Method markup/cost = .10y/.90y x/21.60 = .10/.90 .90x = .10(21.60) x = 2.40 Note Markup Chain
Background image of page 8
Markup Price: Useful Equations Equation #1: Markup % = Markup / (Cost + Markup) Equation #2: Selling Price = Cost / (100% - Markup %)
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Markup Pricing Insights High markups can’t insure big profits Low markups => speed turnover, raise stockturn rate Stockturn rate => the number of times the average inventory is sold in a year
Background image of page 10
Stockturn Rate Store A Store B Annual Sales: $100,000 $100,000 Stockturn Rate : 1 5
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 38

Price_Setting_350_Notes_Apr_09 - Pricing Fundamentals Cost...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online