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What is false about cost plus mark-up pricing? a. attempts to apply or allocate fix costs to pricing strategy b. not intuitive c. good example of value-based pricing d. vulnerable to bad sales estimates e. All are correct f. All are incorrect

What is false about cost plus mark-up pricing? a. attempts to apply or allocate fix costs to pricing strategy b. not intuitive c. good example of value-based pricing d. vulnerable to bad sales estimates e. All are correct f. All are incorrect

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 19E
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What is false about cost plus mark-up pricing?
a. attempts to apply or allocate fix costs to pricing strategy
b. not intuitive
c. good example of value-based pricing
d. vulnerable to bad sales estimates
e. All are correct
f. All are incorrect
SETTING PRICE: PRICE UNITS SOLD (ESTIMATE) 35,000 VARIABLE COSTS $ 15.00 FIXED COSTS $ 250,000.00 DESIRED MARK-UP 25.00% MARK-UP (STANDARD) MANUFACTURER - PRICE TO RETAILER METHOD 1 - SIMPLE MARK-UP See simple markup is the most common. PRICE = VC*(1+DESIRED MARK UP) 2$ 18.75 %3D Cost plus markup formula although not as popular in fact is in use. Also, it is not an intuitive formula. It actually tries to apply/allocating some of the fixed costs to your pricing method. This is counter to standard managerial accounting practice. It also has a weakness that it requires an accurate estimate of sales. If the expected sales estimate is off, your estimates of break-even and/or profit will be inaccurate. Value-based pricing methods are superior to these two mark-up formulas below, because the methods below are focused on company value and not necessary on consumer value(potential company- METHOD 2 - COST PLUS MARK-UP consumer value mis-match). STEP ONE DETERMINE UNIT COST UNIT COST = VC + (FC/UNITS SOLD EST) $ 22.14 STEP TWO - DETERMINE PRICE WITH UC PRICE = UC*(1+DESIRED MARK UP) 2$ 29.52 %3D
Transcribed Image Text:SETTING PRICE: PRICE UNITS SOLD (ESTIMATE) 35,000 VARIABLE COSTS $ 15.00 FIXED COSTS $ 250,000.00 DESIRED MARK-UP 25.00% MARK-UP (STANDARD) MANUFACTURER - PRICE TO RETAILER METHOD 1 - SIMPLE MARK-UP See simple markup is the most common. PRICE = VC*(1+DESIRED MARK UP) 2$ 18.75 %3D Cost plus markup formula although not as popular in fact is in use. Also, it is not an intuitive formula. It actually tries to apply/allocating some of the fixed costs to your pricing method. This is counter to standard managerial accounting practice. It also has a weakness that it requires an accurate estimate of sales. If the expected sales estimate is off, your estimates of break-even and/or profit will be inaccurate. Value-based pricing methods are superior to these two mark-up formulas below, because the methods below are focused on company value and not necessary on consumer value(potential company- METHOD 2 - COST PLUS MARK-UP consumer value mis-match). STEP ONE DETERMINE UNIT COST UNIT COST = VC + (FC/UNITS SOLD EST) $ 22.14 STEP TWO - DETERMINE PRICE WITH UC PRICE = UC*(1+DESIRED MARK UP) 2$ 29.52 %3D
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