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TARGET COSTING
5.
ADVANTAGES OF TARGET
COSTING
Forced
planning
Cost reductions
Competitive atmosphere
Team spirit
Lack
Employee
COST-PLUS PRICING
Adding a standard markup to cost
Ignores demand and competition
Popular pricing technique because:
It simplifies the pricing process
Price competition may be minimized
It is perceived as more fair to both buyers and
sellers
EXAMPLE
Question: Variable cost = Rs 20, Fixed cost = Rs
5,00,000, Expected sales = 1,00,000 units, Desired
Sales Markup = 20%. Calculate Markup Price.
Solution: Unit Cost = Variable Cost + Fixed Cost
Unit Sales
= Rs 20 + Rs 5,00,00
1,00,000
= Rs 25 per unit
Markup
Price =
Unit Cost
(1 Desired return on sales)
= Rs 25
(1- 0.20)
= Rs 31.25 per unit