ACC 312 Study Guide - Midterm Guide: Pareto Analysis, Deflation, Price Discrimination
Document Summary
The traditional approach to sales pricing policy is full cost plus pricing. Cost plus pricing is widely used by companies for a number of reasons: Cost plus pricing may be applied only to selected and relatively minor revenue items, for example on a pareto analysis 80/20 basis. Cost plus pricing may be used for guidance in price setting whilst also taking other factors into account such as levels of demand and competition. The disadvantages are that it: it is not demand based, it does not necessarily ensure that total sales will be greater than total costs, it does not necessarily maximise profit, ignores competition and the relationships between demand and price, Does not necessarily maximise profit, requires the apportionment of shared costs when several products are produced, it may ignore the distinction between variable, fixed and opportunity costs, it may encourage waste. Sales pricing may consider market data and/or take into account risk and uncertainty.
