Introduction to Pricing, Cost plus pricing – ACCA Performance Management (PM)
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as always It is clear lecture.. my question is when we list the advantage of both pricing system we list standard policy .. what does it mean to say standard policy?
The standard policy is whatever policy the company decides to apply.
What an amazing lecture! What is great about you is that you bring interest into the course rather than fear due to your possession of wisdom rather than just knowledge of the subject material. A great teacher indeed does justice to a great degree.
Dear John,
How are you?
I hope you are doing well,
I really do appreciate your lectures, i have a question why do we ignore costs like general and administrative expenses and selling and marketing expenses in determining the price of products.
Because in some businesses these costs represent huge amount.
I mean that you ignored the period costs in determining the price could you explain why plz?
We do not ignore the fixed costs and nowhere do I suggest that we do.
Using cost plus pricing (which is just one possible approach) then if we use marginal costing we include all variable costs but have to try and make sure that the % we add on is sufficient to cover the fixed costs. I explain the befits and problems with both marginal cost plus and absorption cost plus.
Yes, I got that point, so what iam asking, Does the variable costs mentioned in the example includes all variable costs (variable manufacturing and non manufacturing costs) and the same for fixed overhead (I mean that fixed OH mentioned in the example includes manufacturing and non-manufacturing costs)
Yes – variable costs includes all variable costs.
jonak30: You need to study everything, because most likely everything will be tested somewhere in the exam.
Hello John, all the lectures are well explained.
I would like to ask if should we study the “decisions to increase production and sales” (incremental costs and revenues), in this lecture for the exam in June.
Thank you in advance for your answer!
And what about relevant costs?
Hello John,
What if a wrong overhead absorption rate is applied in a period, leading to under-absorbtion of fixed overheads – would full cost plus still guarantee profit?
No it wouldn’t.
Thanks John. Well presented. Cost plus pricing is a conventional approach to price setting (Cost + Profit = SP) without considering the amount customers will pay, what competitors are charging for similar product and costs control. All of these factors definitely will affect the price and demand of the product if not taken into account when setting the price. The question with cost plus pricing is which cost to use?
Thank you for your comment.
There is no answer to your last sentence, but the bigger problem is that it ignores what price customers will pay and what price competitors are charging 馃檪
I see. Is that not a challenge when using cos + pricing approach to price setting? Whatever cost plus pricing can be used be it relevant cost, manufacturing cost, actual cost etc
That is why cost plus pricing is a poor way of determining the selling price, as I explain in the lectures.