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April 2, 2020 at 9:30 pm
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.
April 2, 2020 at 9:50 pm
I mean that you ignored the period costs in determining the price could you explain why plz?
John Moffat says
April 3, 2020 at 9:01 am
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.
April 3, 2020 at 10:14 am
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)
April 3, 2020 at 4:14 pm
Yes – variable costs includes all variable costs.
March 21, 2019 at 5:05 pm
jonak30: You need to study everything, because most likely everything will be tested somewhere in the exam.
March 21, 2019 at 1:57 pm
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!
March 21, 2019 at 2:40 pm
And what about relevant costs?
February 10, 2019 at 8:32 am
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?
February 10, 2019 at 10:50 am
No it wouldn’t.
October 22, 2018 at 10:41 am
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?
October 22, 2018 at 4:23 pm
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 🙂
October 22, 2018 at 4:34 pm
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
October 23, 2018 at 7:03 am
That is why cost plus pricing is a poor way of determining the selling price, as I explain in the lectures.
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