Calculation, Benefits and Risks of Full Cost Plus Pricing

Full Cost Plus Pricing

The full cost plus pricing is the technique of setting the price including the direct labor costs, overhead costs, direct material costs, selling and administrative costs and can be added with markup percentages. This pricing strategy is mainly used for creating profit margins. Too high or too low price can result in decreasing sales and lowering the profit.

Formula and Calculation

The formula for the full cost plus pricing is

Total Production Costs + MarkUp+ Selling And Distribution Costs
Number Of Units Expected For Sales

Generally, this method can be applied in the situations where the products and the services can be offered according to the requirements of the customers. Therefore no standard products can be found and so competition is present in a very passive nature. This pricing method can be used for setting the long term prices.

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