cost-plus pricing


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cost-plus pricing

see COST-BASED PRICING.

cost-plus pricing

a pricing method that sets the PRICE of a product by adding a profit mark-up to AVERAGE COST or unit total cost. This method is similar to that of FULL-COST PRICING insofar as the price of a product is determined by adding a percentage profit mark-up to the product's unit total cost. Indeed, the terms are often used interchangeably. Cost-plus pricing, however, is used more specifically to refer to an agreed price between a purchaser and the seller, where the price is based on actual costs incurred plus a fixed percentage of actual cost or a fixed amount of profit per unit. Such pricing methods are often used for large capital projects or high technology contracts where the length of time of construction or changing technical specifications leads to a high degree of uncertainty about the final price.

Cost-plus pricing is frequently criticized for failing to give the supplier an incentive to keep costs down.

References in periodicals archive ?
Usually, cost-plus pricing is applied to gas destined for domestic consumption.
Cost Pass-Through Ability: PB operates under a cost-plus pricing mechanism, where the price of its products is mostly derived from the cost of raw materials plus a mark-up margin.
Yet the supplier's operating model, infrastructure, culture and supply chain all have evolved to support transactional, activity-based, or cost-plus pricing and execution.
According to the marketing expert I consulted, in addition to "adding a mark up to the break-even price (cost-plus pricing strategy), the price is set a bit higher because of the value customers attach to them".
Cost-plus pricing was seen to be the most common form of price strategy (Govindarajan & Antony, 1983; Gray et al., 1996; Varssnji, 1986.
He said firms need to ask themselves what they spend to deliver specific client services, decouple spending from pricing, and eliminate cost-plus pricing. Firms must create reliable, ranged, or fixed-fee regimens.
This is not an unusual pricing policy, but any cost-plus pricing decision would lead to similar outcomes.
It's a fact that decades of cost-plus pricing, aimed at growing top line sales, has left most castings underpriced and starved for margin.
The company needs to transition from its dependence on cost-plus pricing policies to strategies that will effectively communicate their products' superior value.
The rating is underpinned by ZWiK's low-risk business profile resulting from its monopolistic standing in Sochaczew for water and sewage services, the existing level of tariffs and the high projected tariff hikes under a cost-plus pricing regime.
In reality, however, firms have often used the most common strategies: cost-plus pricing, competition-based pricing, or consumer-based pricing, explain Raju and Zhang, both professors of marketing at the Wharton School, U.