P9 Penetapan Harga (Cost Plus Pricing)

Summary

In this lecture, Miranti Handayani discusses price determination strategies, focusing on cost-plus pricing. She explains how different orientations such as profit, sales, and company image influence pricing decisions. The lecture covers cost calculations using full costing and variable costing methods, highlighting how to add profit margins to determine the selling price. Miranti also touches on ROI-based pricing and how to adjust prices using time and materials for service-based companies. The session provides insights on how costs, profits, and market factors interact in setting the right price for products and services.

Takeaways

• 😀 The importance of setting a target price in line with company goals, such as profit, sales, or image orientation.
• 😀 Profit orientation aims to achieve profit growth by continuously increasing targets and profits.
• 😀 Sales orientation focuses on increasing sales volume and maintaining or growing market share.
• 😀 Image orientation is used to enhance the company’s image, with pricing reflecting quality.
• 😀 Cost-plus pricing is a method based on cost behavior, where a profit margin is added to the cost of production to determine the selling price.
• 😀 There are two main cost calculation methods: full costing (includes all costs, both fixed and variable) and variable costing (includes only variable costs).
• 😀 Full costing includes all direct material, labor, and overhead costs (both fixed and variable) in determining the cost of production.
• 😀 Variable costing focuses on costs directly related to production, such as direct materials, direct labor, and variable overheads.
• 😀 The target selling price is determined by adding a specified profit margin (markup) to the calculated cost, whether using full costing or variable costing.
• 😀 The ROI (Return on Investment) method allows setting prices based on a desired return, with the formula incorporating profit margin, sales turnover, and production costs.
• 😀 Time and material pricing is another method used for service companies, where pricing is based on labor hours and material costs, with a mark-up applied.

Q & A

What is the main concept of cost-plus pricing?

Cost-plus pricing is a strategy where the selling price of a product is determined by adding a markup to the cost of producing the product. The cost includes both direct and indirect costs, and the markup is typically based on a desired profit margin.

What are the three profit orientations a company can have when determining price?

The three profit orientations a company can have when determining price are: 1) Profit orientation, which aims to achieve profit goals and market share growth. 2) Sales orientation, which focuses on increasing sales volume and maintaining or expanding market share. 3) Status/image orientation, where the company sets prices to reflect its image or reputation in the market.

How does full costing differ from variable costing?

Full costing includes all production-related costs, both fixed and variable, such as raw materials, direct labor, and overhead costs. In contrast, variable costing only includes the variable costs directly associated with production, like raw materials, direct labor, and variable overhead costs.

What is the basic formula for determining the selling price using cost-plus pricing?

The basic formula for cost-plus pricing is: Selling Price = Cost Price + Markup. The markup is typically a percentage of the cost price, added to ensure the company achieves its desired profit margin.

What is the role of return on investment (ROI) in setting prices?

ROI is used by companies to set prices based on a desired return on the capital invested in production. It is calculated by dividing the profit margin by the sales turnover and adjusting the selling price to achieve a specific ROI percentage.

How is target pricing determined using the full costing method?

In the full costing method, the target selling price is determined by adding a percentage markup to the total production cost, which includes both fixed and variable costs. For example, if the total cost is $30, and the markup is 50%, the target selling price would be $45.

What factors influence the final selling price under cost-plus pricing?

The final selling price is influenced by factors such as production and operating costs, market conditions, profit margins, and the company’s objectives (profit orientation, sales orientation, or image/status orientation).

What are the key components of the variable costing method?

In variable costing, only the variable costs associated with production are considered. These typically include direct raw material costs, direct labor costs, and variable overhead costs. Fixed costs are not included in this calculation.

How does the time and material pricing method work?

The time and material pricing method is commonly used in service industries like repairs and maintenance. It calculates the cost based on labor hours and materials used, adding a markup for profit. This method takes into account direct labor wages, machine usage, and indirect costs like supervisor salaries or insurance.

What is the formula to determine the profit margin percentage?

The profit margin percentage can be calculated using the formula: (Selling Price - Cost Price) / Cost Price * 100%. This formula helps to determine the percentage of profit over the cost price.