5) Size of the markup (the “plus”) depends on the desired return on investment for the...

5) Size of the markup (the “plus”) depends on the desired return on investment for the product. Why?

6) What are the limitations of Cost-Plus pricing?

7) What are the three ways to determine transfer price?

Expert Solution

(5) Size of the markup depends on the desired return on investment for the product because its a
pricing method in which the fixed amount or the percentage of cost of the product is added to product’s price to get the selling price of the product.

(6) Limitations of cost plus pricing are-

(a)This method does not take into account the future demand for a product which should be the base before deciding the price of a product and therefore a serious limitation of this method.
(b)It also does not taken into account the competitor actions and its effects on pricing of the product, because in today competitive world if one solely depends on cost plus pricing it can lead to failure of company’s product in the market.
(c)It can result in company overestimating the price of a product because this method include sunk cost and ignores opportunity cost also while calculating cost and there is element of personal bias while deciding the profit margin which is to be added for a product

(7) three ways to determine transfer price-
(a) Resale price method
(b)Cost plus method
(c)the transactional net margin method

ekkarill92 answered 1 year ago

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