Relationship Between Full Cost and Contribution Margin Pricing
Although the full cost pricing and contribution-margin based approach for pricing are considered as a distinctively different approaches, by and large, they represent to a certain degree, cost plus type pricing. They can be considered complementary to each other but not competing. Fixed costs are important in both the pricing models. But in contribution margin pricing, they are treated in a different manner than in the full-cost pricing method. Full-cost pricing makes a normal mark-up on total costs and it does not take volume of production into consideration. On the other hand, contribution margin approach to pricing is concerned about cost, volume and profit and makes cost-volume-profit analysis. But in both the methods, the selling prices proposed must be only tentative and they are always subjected to adjustments.
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