What is false about cost plus mark-up pricing?a. attempts to apply or allocate fix costs to pricing strategyb. not intuitivec. good example of value-based pricingd. vulnerable to bad sales estimatese. All are correctf. All are incorrect SETTING PRICE:PRICEUNITS SOLD (ESTIMATE)35,000VARIABLE COSTS$15.00FIXED COSTS$250,000.00DESIRED MARK-UP25.00%MARK-UP (STANDARD)MANUFACTURER - PRICE TO RETAILERMETHOD 1 - SIMPLE MARK-UPSee simple markup is the most common.PRICE = VC*(1+DESIRED MARK UP)2$18.75%3DCost plus markup formula although not as popular in fact is in use. Also, it is not anintuitive formula. It actually tries to apply/allocating some of the fixed costs to yourpricing method. This is counter to standard managerial accounting practice. It also has aweakness that it requires an accurate estimate of sales. If the expected sales estimate isoff, your estimates of break-even and/or profit will be inaccurate. Value-based pricingmethods are superior to these two mark-up formulas below, because the methods beloware focused on company value and not necessary on consumer value(potential company-METHOD 2 - COST PLUS MARK-UPconsumer value mis-match).STEP ONE DETERMINE UNIT COSTUNIT COST = VC + (FC/UNITS SOLD EST)$22.14STEP TWO - DETERMINE PRICE WITH UCPRICE = UC*(1+DESIRED MARK UP)2$29.52%3D

Cost plus pricing: It is a pricing strategy in which company set selling price by charging markup…

What is false about cost plus mark-up pricing? a. attempts to apply or allocate fix costs to pricing strategy b. not intuitive c. good example of value-based pricing d. vulnerable to bad sales estimates e. All are correct f. All are incorrect

What is false about cost plus mark-up pricing? a. attempts to apply or allocate fix costs to pricing strategy b. not intuitive c. good example of value-based pricing d. vulnerable to bad sales estimates e. All are correct f. All are incorrect

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

100%

What is false about cost plus mark-up pricing?

a. attempts to apply or allocate fix costs to pricing strategy

b. not intuitive

c. good example of value-based pricing

d. vulnerable to bad sales estimates

e. All are correct

f. All are incorrect

SETTING PRICE:
PRICE
UNITS SOLD (ESTIMATE)
35,000
VARIABLE COSTS
$
15.00
FIXED COSTS
$
250,000.00
DESIRED MARK-UP
25.00%
MARK-UP (STANDARD)
MANUFACTURER - PRICE TO RETAILER
METHOD 1 - SIMPLE MARK-UP
See simple markup is the most common.
PRICE = VC*(1+DESIRED MARK UP)
2$
18.75
%3D
Cost plus markup formula although not as popular in fact is in use. Also, it is not an
intuitive formula. It actually tries to apply/allocating some of the fixed costs to your
pricing method. This is counter to standard managerial accounting practice. It also has a
weakness that it requires an accurate estimate of sales. If the expected sales estimate is
off, your estimates of break-even and/or profit will be inaccurate. Value-based pricing
methods are superior to these two mark-up formulas below, because the methods below
are focused on company value and not necessary on consumer value(potential company-
METHOD 2 - COST PLUS MARK-UP
consumer value mis-match).
STEP ONE DETERMINE UNIT COST
UNIT COST = VC + (FC/UNITS SOLD EST)
$
22.14
STEP TWO - DETERMINE PRICE WITH UC
PRICE = UC*(1+DESIRED MARK UP)
2$
29.52
%3D

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