​What is cost-based pricing?

timer Asked: Nov 12th, 2015
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Question Description

What is cost-based pricing?

Is it risky? What information supports your response?
Please explain.

Tutor Answer

School: University of Maryland

Thank you for the opportunity to help you with your question!

According to a professional source, "Cost-based pricing is the easiest way to calculate what a product should be priced at. This appears in two forms: full cost pricing and direct-cost pricing. Full cost pricing takes into consideration both variable, fixed costs and a % markup. Direct-cost pricing is variable costs plus a % markup" ("Cost-Based Pricing"). Basically what is being discussed here is the idea that a producer, when pricing their product, looks at the cost it took to make the product and tacks on extra for the selling price in order to make profit. This is risky for a business because of the lack of acknowledgement of the common price amongst competitors, because, if you price higher above your competitors with the same quality, this process could run you out of business. This is supported by basic laissez-faire economics. 

Works Cited: 

 Cost-Based Pricing. (n.d.). Retrieved November 12, 2015, from https://www.boundless.com/business/textbooks/boundless-business-textbook/product-and-pricing-strategies-15/pricing-methods-93/cost-based-pricing-434-429/ 

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Tutor went the extra mile to help me with this essay. Citations were a bit shaky but I appreciated how well he handled APA styles and how ok he was to change them even though I didnt specify. Got a B+ which is believable and acceptable.

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