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In full cost plus pricing, it is said that full cost may be a fully absorbed production cost only, or it may include some absorbed selling, distribution and administration overheads.
In the former case the mark up on cost must be greater in order to recover the other costs
What does that mean?
Thanks..
In order to make a profit, the selling price must be more than all the costs, not just the production costs.
If the are adding a mark-up just to the production costs, then it needs to be a high enough percentage so as to cover the other costs as well, if they are going to make a profit.
Have you watched my free lectures on this? The lectures are a complete free course and cover everything needed to be able to pass the exam well.
Hello Sir. Thanks for your reply. I have watched your free lectures but cant understand the sentence above. There are two scenarios as far as I can understand. One is covering the production costs only and the other covering the production costs plus the administrative selling, distribution and administration overheads.
If we are covering the production costs only what will be the other costs?? I cant understand Sir. Can you give me an example?
Thanks.
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