Cost accounting Lean accounting
1 Lean Accounting does not require the traditional management accounting
methods like standard costing, activity-based costing, variance
reporting, cost-plus pricing, complex transactional control systems, and
untimely & confusing financial reports
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Cost Cost estimation
1 Cost-plus pricing, is where the price equals cost plus a percentage of overhead or profit
margin.
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Pricing - Elements of pricing
1 How to set the price?: (fixed pricing, cost-plus pricing, demand-based or value-based pricing, rate of return
pricing, or competitor indexing)
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Retail - Retail pricing
1 The pricing technique used by most retailers is cost-plus pricing. This
involves adding a markup amount (or percentage) to the retailer's cost.
Another common technique is suggested retail pricing. This simply
involves charging the amount suggested by the manufacturer and usually printed on the product by the
manufacturer.https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html
Retailer - Retail pricing
1 The pricing technique used by most retailers is cost-plus pricing. This involves
adding a markup (business)|markup amount (or percentage) to the retailer's
cost. Another common technique is suggested retail price|suggested retail
pricing. This simply involves charging the amount suggested by the manufacturer
and usually printed on the product (business)|product by the manufacturer.
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Management consulting - Revenue model
1 Traditionally, the consulting industry charged on a Cost-plus pricing|time and materials basis, billing for staff consultants based upon the hours
worked plus out-of-pocket expenses such as travel costs
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Production, costs, and pricing - Concepts
1 ***cost-plus pricing with elasticity considerations
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Steve Keen - Critique of neoclassical theory of the firm
1 Keen's work (as opposed to his popularization) has also focused on refuting
the neoclassical theory of the firm, which argues that firms will set marginal revenue
equal to marginal cost. Keen notes that empirical research finds real firms set price
well above marginal cost: they charge a Markup (business)|markup, often cost-plus
pricing; compare fellow post-Keynesian Alfred Eichner, who also argued for markup
pricing.https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html
List of marketing topics - Pricing
1 ** Cost-plus pricing with elasticity considerations
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Shopping - Pricing and negotiation
1 The pricing technique used by most retailers is cost-plus pricing. This involves
adding a markup (business)|markup amount (or percentage) to the retailers'
cost. Another common technique is suggested retail price|manufacturers
suggested list pricing. This simply involves charging the amount suggested by the
manufacturer and usually printed on the product (business)|product by the
manufacturer.https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html
Lean accounting - Introduction
1 Lean Accounting does not require the traditional management accounting
methods like standard costing, activity-based costing, variance
reporting, cost-plus pricing, complex transactional control systems, and
untimely confusing financial reports
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Lean accounting - Value-based pricing
1 This approach is in stark contrast to many traditional companies that
calculate their prices using the Cost-plus pricing|cost-plus method
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Cost-plus pricing
1 'Cost-plus pricing' is a pricing strategies|pricing strategy that is
used to maximize the rates of return of companies.
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Cost-plus pricing
1 Firms may achieve profit maximization by increasing their production until their marginal
revenue equals their marginal cost, then charging a price determined by the demand curve. In practice, most firms use either value-based pricing or cost-plus pricing. Cost-plus pricing
is also known as mark-up pricing where cost + mark-up = selling
price.https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html
Cost-plus pricing
1 There are several variations of cost-plus pricing, but the most common method is to calculate the cost of the product, then add a percentage of the cost as markup (business)|markup. This approach sets prices that cover the cost of production and provide sufficient profit margin for
the firm to reach its target rate of return. It also provides a way for companies to
calculate how much profit they will make.
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Cost-plus pricing
1 Cost-plus pricing is often used on government contracts (cost-plus contracts)
and has been criticized as promoting wasteful expenditures in the form of direct
costs, indirect costs, and fixed costs whether related to the production and sale
of the product or service or not. These costs are converted to per-unit costs for the
product; then a predetermined percentage of these costs is added to provide a profit
margin.https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html
Cost-plus pricing
1 Therefore, cost-plus pricing is often considered the most rational
approach to maximizing profits due to the ease of its calculation and lack
of any additional information
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Cost-plus pricing - Mechanics of cost-plus pricing
1 In cost-plus pricing we use quantity to calculate price and price
determines quantity. To avoid this problem, a quantity is assumed. This
rate of output is based on some percentage of the firm's capacity.
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Cost-plus pricing - Reasons for wide use
1 Firms vary greatly in size, product range, product characteristics, and
so on. Firms also face different degrees of competition in markets for
their products. Therefore, a clear explanation cannot be given for the widespread use of cost-plus pricing. However the following points explain
why this approach is widely used:
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Cost-plus pricing - Reasons for wide use
1 * This approach reduces the cost of decision-making. Firms preferring stability use cost-plus pricing as a
guide for pricing products in an uncertain market where knowledge is
incomplete.
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Cost-plus pricing - Reasons for wide use
1 * Firms are never too sure about the shape of their demand curve, nor are
they very sure about the probable response to any price change. It becomes risky for a firm to move
away from cost-plus pricing.
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Cost-plus pricing - Reasons for wide use
1 * Unknown reaction of rivals to the set price is a major uncertainty. When product and production
process are similar, competitive stability is achieved by using cost-
plus pricing. This competitive stability is achieved by setting a price likely to yield acceptable
returns to other members of the industry.
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Cost-plus pricing - Usefulness
1 Cost-plus pricing is especially useful in the
following cases:
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Cost-plus pricing - Usefulness
1 * One buyer, many sellers: cost-plus pricing is useful in cases like
monopsony buying. In this situation, the buyers have enough knowledge about supply chain|suppliers' costs. Thus, they may make the product
themselves if they do not agree with the offered prices. The relevant cost
would be the cost which a buying company would incur if it made the
product itself.https://store.theartofservice.com/the-cost-plus-pricing-toolkit.html
Cost-plus pricing - Disadvantages
1 * Calculation of costs is complex and depends on asset valuation, thus offering scope for disguising what may essentially be value-based
pricing as cost-plus pricing
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Cost-plus pricing - Cost-plus pricing and economic theory
1 Cost-plus pricing is based on average costs and not marginal
costs
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Cost-plus pricing - Cost-plus pricing and economic theory
1 If the mark-up over cost is based on demand, cost-plus pricing may not
be inconsistent with profit maximization.
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Target pricing
1 In the traditional cost-plus pricing method, materials, labor and
overhead costs are measured and a desired profit is added to determine
the selling price.
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Value-based pricing
1 The approach is most successful when products are sold based on emotions
(fashion), in niche markets, in shortages (e.g. drinks at open air festival at a hot summer
day) or for indispensable add-ons (e.g. printer cartridges, headsets for cell phones). Goods that are very intensely traded (e.g. oil and other commodities) or that are sold to
highly sophisticated customers in large markets (e.g. automotive industry) usually
are sold using cost-plus pricing.
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William C. Durant - General Motors
1 Durant and Samuel McLaughlin of Canada signed a 15-year contract to build Buick powertrains at Cost-plus pricing|cost plus; they were called
McLaughlin until 1942
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