Most people, whether beginners in marketing studies or older businessmen, when asked how prices come from, start from manufacturing costs. The most common approach is to calculate the "cost-plus" or the baseline cost calculation and the profit reserve.
Cost and profit can not be the only key to "right" though important elements. In the worst case, if the costs are not restored, the company can not survive. Likewise, if & # 39; reasonable & # 39; profits are not available, in the long run the company can not survive.
The cost-plus approach therefore contains some essential elements and in principle is the merit of simplicity. In practice, however, things are not so simple because they need to know (a) what the cost is and (b) what a reasonable profit.
The problem of cost determination is that the cost per unit usually depends on the amount produced. This is because there are certain fixed costs – rents, prices, capital costs, hire of machinery and equipment, certain wages and salaries – that arise independently of the production level. As the quantity produced increases, the fixed unit cost is reduced. In addition, variable costs arise for each unit, for raw materials, for performance and for certain wages. The amount of fixed costs and variable costs divided by the number of units produced, which is the unit cost per unit.
This means that production costs are not the simple and unchangeable shape that is sometimes conceivable. Even worse, the number of units produced depends on demand and demand is affected by the price. So now we are in a situation where we try to reach the most important factor at cost, but the cost itself determines the price.
Also remember that the total cost (including marketing and distribution costs) is not the simple "Factory Gate" is the cost of manufacturing alone.
Source by sbobet