​What is cost-based pricing?

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What is cost-based pricing?

Is it risky? What information supports your response?
Please explain.
Nov 12th, 2015

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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/ 


Please let me know if you need any clarification. I'm always happy to answer your questions.
Nov 12th, 2015

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