1 Product cost costbased strategy a markup it is where a standard percentage based on cost is adopted b target profit ROI prices are set towards attaining a satisfactory rate on return ID: 791091
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Slide1
Factors to consider in Pricing
1. Product cost (cost-based strategy)
a. mark-up-
it is where a standard percentage based on cost is adopted
b. target profit (ROI)- prices are set towards attaining a satisfactory rate on return
.
2. Target
market
3.
Competition
Slide2Unit
cost +
Target ROI x Investment Unit Sales
Target profit pricing formula:
Target profit pricing=
Slide3Variable +
cost Unit cost formula:Unit cost pricing=
Over- all expensesTarget sales volume(
based on market segmentation)
Slide4Example :
Mang Kikoy is planning to put up a water refilling station. Using the following information, compute the right price of the new product of Mang Kiko.Variable CostsCost
ContainerP 80/waterWaterP 2/ gallonWater labelP 1.50/ containerTotal variable cost
??????
Fixed cost
Rent Expense
P 5, 500
Office salary
P 3, 500
Electricity, water, tel.bill
P 4, 000
Total fixed cost
P 11, 000
Expected Sales/month
3, 000 units
Investment
P ????
Target ROI
30%
Slide5Variable Costs
CostContainerP 80/waterWaterP 2/ gallonWater labelP 1.50/ containerTotal variable cost??????
Fixed cost Rent ExpenseP 5, 500Office salaryP 3, 500Electricity, water, tel.bill
P 4, 000
Total fixed cost
P
13,
000
Expected Sales/month
3, 000 units
Investment
P ????
Target ROI
30%
Slide6Variable Costs
CostContainerP 80/waterWaterP 2/ gallonWater labelP 1.50/ containerTotal variable cost
?????? Fixed cost Rent ExpenseP 5, 500
Office salary
P 3, 500
Electricity, water,
tel.bill
P 4, 000
Total fixed cost
P 11, 000
Expected Sales/month
3, 000 units
Investment
P ????
Target ROI
30%
Slide7Let’s try:
Penshoppe Inc. is planning to sell new designs of shirt. Using the following information, compute for the price of the new product of Penshoppe.
Slide8Variable Costs
CostFabricP 20/RTWButtonsP 4/RTWLabourP 7/ RTWTotal variable cost
Fixed cost Rent ExpenseP 2, 500Office salary
P 5, 500
Total fixed cost
Expected Sales/Year
3, 200 RTW
Investment
P 8, 000
Target ROI
25%