Question

Recently in a planning meeting the vice president of manufacturing suggested that the selling price of their product should be increased so as to decrease the break-even point. The vice president of sales readily agreed with the idea that a loss for the company could be avoided, but some in the room expressed their dismay. Who would you agree or disagree with and why? What other things should be taken into consideration?

Answer 1

I agree with those who dismay in the room and will disagree with the vice president of manufacturing and sales. It is because in today's competitive environment , price is defined and governed by the market and cannot be decided or governed by then business. As and when the company will increase the price of the product , it will lead to fall in the sales of the company and due to which the aim of the company to decrease their break even would not have any use.

There are other measures which may be taken instead of increasing selling price like managing cost. It should properly manage it's cost by implementing various measures like adoption of standard costing who h will help rhe company to keep a check on the expenditures it is incurring, increasing sales by promoting the product of the company, trying to reduce variable cost by effectively utilizing the resources and acquiring them by doing proper negotiation and last but not the least reduce the fixed cost by retiring any expensive loans taken or looking for other avenues to reduce fixed cost.