full-cost pricing

full-cost pricing

see COST-BASED PRICING.
Full-cost pricingclick for a larger image
Fig. 77 Full-cost pricing. The price (OP) is made up of three elements: a contribution to cover part of the firm's overhead costs (average FIXED COST) - AB; the actual unit cost (average VARIABLE COST) of producing a planned output of OQ units - BC; a PROFIT MARGIN expressed as a fixed percentage of total unit costs (average variable cost plus average fixed cost) - CD.

full-cost pricing

a pricing method that sets the PRICE of a product by adding a percentage profit mark-up to AVERAGE COST or unit total cost, where unit total cost is composed of average or unit variable cost and average or unit fixed cost. See Fig. 77 . A key element in full-cost pricing is the estimate of sales volume that is necessary to calculate average fixed cost and required unit contribution, although inevitably the price charged will itself affect sales volume. The full-cost pricing method is also called AVERAGE-COST PRICING. Although this pricing method is based upon costs, in practice managers take into account demand and competition by varying the target profit markup over time and between products. Compare MARGINAL-COST PRICING. See COST-PLUS PRICING.
References in periodicals archive ?
Moreover, providers that are financed by full-cost pricing have an incentive to adopt the most efficient and effective ways for providing the service and to supply it only up to the level and quality that people are willing to pay for.
When, for example, was the last time you read a nice crisp paragraph on economic justice as a necessary precondition of successful full-cost pricing? Ten dollars a gallon for gas?
But the full-cost pricing system has often been criticized as a ''black box'' because of the difficulty of grasping how it actually operates, and the panel is carefully checking whether what TEPCO sees as "costs" have been appropriately calculated.
businesses, farmers, environmental not-for-profits, and government agencies, under the auspices of The Johnson Foundation at Wingspread, has taken up the call for full-cost pricing as a solution to the impending freshwater crisis, saying that society no longer can afford to treat water as a "cheap, nonstrategic, and infinitely available resource."
The book also discusses the equity aspects of full-cost pricing. Solomon is research professor of law at George Washington University Law School.
This system would involve full, tradable rights to surface water, "ownership" of groundwater, an end to federally subsidized water projects, and full-cost pricing of water delivered to users.
Introducing full-cost pricing for water together with taxes to discourage large-scale livestock concentration close to cities.
It also suggests improving animals' diets to reduce enteric fermentation and consequent methane emissions, and setting up biogas plant initiatives to recycle manure and introducing full-cost pricing for water together with taxes to discouragelarge-scale livestock concentration close to cities.
He further says that utilities need to look at every opportunity to close the gap, including full-cost pricing (charging customers the actual cost of the service), proper asset management, and anticipating problems before they occur.
Analysts are increasingly realizing that the water needs of the future cannot be met without realistic full-cost pricing. This is a difficult and controversial task, because it attempts to convert transactions traditionally subject to nonmarket political rules to ones that are primarily ruled by economics.
Gox (2001) considers two alternate reactive pricing policies marginal cost pricing and "adaptive full-cost pricing." In the latter case, the problem is formulated to maximize gross margin, i.e., as if full cost were the long-run variable cost.
A viable policy option for closing the distance between price and cost is "full-cost pricing" - that is, forcing producers to internalize costs that to the present have been treated as external costs.