Unit 13: Pricing Decisions
Pricing
which is part of the overall marketing strategy plays a very critical role in
the success of a company as it is able to increase the profi tability and or
increase the market share.
When
there is considerable unfi lled capacity it may be necessary to accept a lower
contribution in order to provide work in the factory.
The
important pricing objective is to exploit the fi rm’s competitive position in
the market place.
Before
determining prices certain important factors should be taken care of.
The
various methods of pricing include the following: Full cost pricing;
Variable/Marginal Cost Plus pricing; Rate of Return Pricing; Break-even
Pricing; Minimum Pricing, etc.
Marginal
Cost Pricing: Under marginal Cost pricing, selling price is determined by
adding a mark up or margin on the total variable costs (marginal cost).
Marginal
Costing Technique: Marginal costing technique helps in determining the most
profi table relationship between costs, prices and volume of business.
Transfer
Prices: Transfer prices are the amounts charged by one segment of an
organization for a product or service that it supplies to another segment of
the same organization.
