Question

Do any of you have experience with "cost-plus" pricing or with "target" pricing? Will you share?

Answer in your own words thank you

Answer 1

Cost-plus pricing starts with an estimation of the costs incurred to provide a service or build a product, and a certain percentage of profit is added to established price thus the amount incurred on the service or product is managed from a predetermined. If in business I am introducing a new line of chairs in my business, the per-unit production and distribution costs were $550 per chair, which consists of $150 materials, $250 labor, and $150 in fixed and variable overhead. If I have decided business typical mark-up is 55 percent above cost, then have to fix selling price as $850

On contrary target costing refers to an approach that mitigates cost efficiency issues associated with introduction of new products by integrating the product design, desired profit, desired price, and desired cost into one process starting at the product development stage. If in business I am planning to introduce a new line of chairs and plan to earn a $300 profit margin and sell a chair for $850, it will mean that my company's production, distribution and sales costs need to be $550 or less.