Marketing Chapter 10 part 4

$100,000 / 250 =$400

for the average cost pricing: To make this calculation requires predicting how much of the offering will be demanded. Assuming total costs of $100,000 and forecasted total number of units of 250, the average cost of a single unit is:

1) cost-plus pricing/markup on cost 2) markup on sale price 3) average-cost price 4) target return price

4 methods used to set the price

All costs / Total number of units = Average cost of a single unit

The basic formula for average-cost pricing is:

markup on sales price

The markup percentage is $5.00 / $12.00 = 41.7 percent. That is, the $5.00 markup is 41.7 percent of the sales price. In most applications, when a marketing manager simply refers to "markup," he or she is referring to this calculation— ________ , which uses the sales price as a basis of calculating the markup percentage. This is because most important items on financial reports (gross sales, revenue, etc.) are sales, not cost, figures.

target return pricing

To better take into account the differential impact of fixed and variable costs, marketing managers can use ________ . First, a few definitions are in order. Fixed costs are incurred over time, regardless of volume. Variable costs fluctuate with volume. And total costs are simply a sum of the fixed and variable costs. To use _________, one must first calculate total fixed costs. Second, a target return must be established.

Cost-plus pricing

_______ is really just a general heuristic that builds a price by adding a standardized markup on top of costs for an offering, hence the term markup on cost .

(fixed cost + Target return)/Units (250,000+50,000) / 1,500 = 250

target return pricing: Let's assume that total fixed costs are $250,000 and the target return is set at $50,000 for a total of $300,000. Next, a demand forecast must be made. If demand is forecast at 1,500 units: