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A variation on cost-plus pricing is time-and-material pricing. Under this approach, two pricing rates are set....

A variation on cost-plus pricing is time-and-material pricing. Under this approach, two pricing rates are set. Explain where this approach is used and identify the steps involved in time-and-material pricing. Also explain what the material loading charge covers and how it is expressed.

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This approach of variation in cost-plus pricing is particularly used in case of service based industries. This approach is also known as time-and-material pricing. Under this method, two types of pricing rates are used. One of the rates is based on use of direct labor and the other is based on use of cost of direct material in determining the pricing rates. The method in pricing is used in various areas where there is need for repairing a good or printing out a material. It is used by working people namely dentists and physicians. It is also used by professional firms. The rates of time and material is determined by forces of demand and supply as in case of determination of market conditions. In case of some companies they use the method of absorption costing which is similar to the method of cost plus pricing. The method would include allowances in terms of selling, general and administration expenses. It would include other direct and indirect costs and an expected profit. The material loading charge would include allowances in terms of cost of purchasing, receiving, handling and storing of materials and would also include an expected profit. The material loading charge also covers the overhead costs. It is expressed as a percentage of the total estimated costs in terms of parts and materials for the year.

ekkarill92 answered 11 months ago
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