Question

In: Accounting

Please understand that a wrong answer from you will result in a down vote, negative feedback,...

Please understand that a wrong answer from you will result in a down vote, negative feedback, and a tweet to chegg support. I have less tolerance towards incompetency when my money is spent on your talent. Provide detail explanation and type your answer.
18) why products are sold below the cost price ?

Solutions

Expert Solution

Solution:-

18) why products are sold below the cost price:-

Price of goods or products are decided according to the prevailing market condition. As a marketing strategy, sometimes products are sold below cost of production. An effective pricing decision must bear some relation to cost. Attempts must be made to ensure that the prices of products generate a desirable level of profits.

In connection with price determination, industries do enjoy some discretion in setting the prices of their products above or below the cost of production. They, therefore, set prices in relation to cost. They may consider it desirable to sell products at prices which bring them a normal profit.

Selling below cost for normal profit

Products are sold below cost of production for normal profit. Many industries price their products in such a manner that they cover the cost of production, distribution and normal profit. For instance, the textile industry, which is suffering from demand recession, has followed the policy of keeping the prices relatively stable. Large textile industries operating at a reasonable sales volume at these prices earn normal profits. In this marketing condition, the maintenance prices by large producers have provided an “umbrella” under which small manufacturers flourish.

Electronics industry has been facing an altogether different situation, for though advances in technology have facilitated reductions in the cost of production; yet no significant change in the prices of finished goods has been witnessed. Due to the high profit margin, a variety of competitors market goods below cost of production than those of reputed manufacturers.

Selling below Cost as a policy

There is a variety of forces which at times tempt companies to sell their products below the cost of production. Every producer has to incur certain expenses like rent, interest, wages, etc, which have to be recovered whatever the level of sales. Besides this, the expenditure on material and labor varies with the volume of the product.

But it is not desirable for a company to sell goods below its total cost of production. With a view to increasing sales, some manufacturers resort to the policy of selling below cost of production. But if the turnover is low, this may lead to heavy losses and distort the market. Moreover, once the price is reduced, it is difficult to return to the previous level. Therefore, the pricing policy followed at one time may substantially affect the company’s future pricing, beside affecting its sales.

Products are sold below cost for liquidation of Inventory:

When there is overstocking of finished goods and the demand is at a low ebb, it is desirable to sell the goods below cost. In fact, it is desirable to do so in certain circumstances; for example, if a company does not enjoy good financial health and there is extreme paucity of funds, and bankruptcy is apprehended, it is desirable to sell goods below cost. Even financially sound companies at times find it desirable to sell goods below cost. For example, if market prices show a declining trend, it is desirable to sell the goods at any price they bring rather than stock them for a period, where they may fetch even lower prices. A similar condition may arise in a firm dealing in fashion goods or perishable goods, when circumstances compel middlemen to sell goods at a low price.

Please Rate or comment if you have any doubt regarding this solution.


Related Solutions

Please understand that a wrong answer from you will result in a down vote, negative feedback,...
Please understand that a wrong answer from you will result in a down vote, negative feedback, and a tweet to chegg support. I have less tolerance towards incompetency when my money is spent on your talent. Provide detail explanation and type your answer. 11) What are Bench Marking Recommendations are all about ? it is relating to bench marking concept
Please understand that a wrong answer from you will result in a down vote, negative feedback,...
Please understand that a wrong answer from you will result in a down vote, negative feedback, and a tweet to chegg support. I have less tolerance towards incompetency when my money is spent on your talent. Provide detail explanation and type your answer. 17) Disadvantages of Cost + Pricing ?
PLEASE READ THIS CAREFULLY FIRST BEFORE ANSWERING!!!!!! A DOWN VOTE WILL BE GIVEN IF YOU JUST...
PLEASE READ THIS CAREFULLY FIRST BEFORE ANSWERING!!!!!! A DOWN VOTE WILL BE GIVEN IF YOU JUST PASTE AN ANSWER WITHOUT JUSTIFYING IT LIKE I'M ASKING FOR. I know this question is already on here but i have seen too many differing answers for a) and ultimately b) & c) so i am after justification for your answer that you provide. The main answers i have seen for a) are 35955.4 Kg/Hr and 44398.3 Kg/Hr dependant on which side they put...
Question 1 Positive feedback differs from negative feedback because ________. positive feedback is generally beneficial while...
Question 1 Positive feedback differs from negative feedback because ________. positive feedback is generally beneficial while negative feedback is typically harmful positive feedback tends to enhance the triggering stimulus while negative feedback tends to return the body to a homeostatic balance or "ideal" level positive feedback is critical to health while negative feedback serves only to alert us to potential health threats positive feedback provides moment-to-moment wellbeing while negative feedback causes a cascade effect 2 points Question 2 A substance...
please do it in C++, will up vote!! please add snap shots of result and explanation....
please do it in C++, will up vote!! please add snap shots of result and explanation. You are to create a recursive function to perform a linear search through an array. How Program Works Program has array size of 5000 Load values into the array, equal to its index value. Index 5 has value 5, index 123 has value 123. Pass array, key, and size to the recursive function: int recursiveLinearSearch(int array[],int key, const int size, bool & methodStatus) User...
please do it in C++, will up vote!! please add snap shots of result and explanation....
please do it in C++, will up vote!! please add snap shots of result and explanation. You are to create a recursive function to perform a linear search through an array. How Program Works Program has array size of 5000 Load values into the array, equal to its index value. Index 5 has value 5, index 123 has value 123. Pass array, key, and size to the recursive function: int recursiveLinearSearch(int array[],int key, const int size, bool & methodStatus) User...
Answer only if you are 100%sure otherwise I will give negative feedback. Explain with neat diagrams...
Answer only if you are 100%sure otherwise I will give negative feedback. Explain with neat diagrams the systolic association of rocks with respect to the locking and popping theory? This is Civil Engineering questions
Which of the answer choices is an example of negative feedback altering homeostatic control? A person...
Which of the answer choices is an example of negative feedback altering homeostatic control? A person with a bacterial infection runs a fever and his body temperatures rises and stays elevated for several days. The concentration of salt in a person's urine increases after that person eats a large bag of salty chips. A person's heart rate remains elevated over the course of a long run. The production of oxytocin (a hormone) increases in a pregnant woman's body as oxytocin...
Please don't leave any questions to answer. If you are waiting for great feedback then that...
Please don't leave any questions to answer. If you are waiting for great feedback then that should be me. This questions are from surveying and spatial science a). You are working in the Environmental Management section of a Local Government Council. Your Local Government area includes approximately 100 km of coastline, comprising a mix of beaches, coastal dunes, rocky shores and headlands. Some regions of the coastline are considered highly vulnerable to the effects of climate change. Along the coastline...
Answer the question: Non-GAAP earnings, however, also generally result in a more positive or negative (please...
Answer the question: Non-GAAP earnings, however, also generally result in a more positive or negative (please choose one) earnings outcome than GAAP earnings. Briefly explain your answer.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT