For Cost Markup Pricing describe the following: A brief description of how to perform the estimate....

For Cost Markup Pricing describe the following:

A brief description of how to perform the estimate.

Relative accuracy of the results.

When this approach would be most appropriate to use.

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Expert Solution

Cost markup pricing is a technique which is used to calculate the estimate/ Sales Price based on the current cost/ Cost Price and the markup value. Markup value is defined as the profit % over a cost price to have a better sale.

Let's take an example for the same:

A is a vegetable seller. He gets an order to deliver 20 vegetables, which he gets from the supermarket at the rate of $2 each. He is also asked to deliver a pack of fruits which costs him $10 from the supermarket along with that. The delivery cost to deliver the vegetables is $10. He wants to earn 10% markup for the goods that he sell, what should he charge the person?

For this, we need to first calculate the cost price for this scenario

C.P = $((20*2)+10+10)

= $60

Expected markup = 10%

= 10% of $60

= $6

Hence he should sell the stuff at a selling price of $66 to earn the desired markup.

Markup pricing is a good way to calculate prices, but it usually fails when there is an indirect cost attached to the product. Let's says taxes. Markup is basically the difference b/w selling price and cost price, and it does not takes into account indirect costs. Hence it's accuracy dips when indirect costs are also available as a factor.

keosha answered 3 months ago

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