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The pricing decision
Marginal cost-plus pricing
Marginal cost plus = variable cost + % contribution margin.
Simple to operate Does not ensure that sufficient attention
is paid to demand conditions, competitors
prices and profit maximisation
Draws management attention to Ignores fixed overheads in the pricing
contribution and the effects of higher or decision. Fixed costs may not be
lower sales volumes on profit recovered in the long term
Good for pricing specific contracts – Difficult to raise prices where mark-ups
recognises relevant costs are low
Facilitates decision making when May encourage price wars
resources are scarce
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