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Marginal cost or incremental cost pricing method:
Here the company may work on the premise of recovering its marginal cost and getting a contribution towards its overheads. This method works well in a market already dominated by giant firms or characterized by intense competition and the objective of the firm is to get a foothold in the market.
In the example of shirts given above the variable cost is Rs 30 per shirt. As long as the firm is able to recover this cost and get a contribution towards its overheads, it is an acceptable pricing method. This will also work when the firm has an inventory of finished goods and it wants to liquidate it. At that time the prime concern is to recover the direct costs. The problem with this method is that it often sparks price wars which is not beneficial to any firm in the industry.
Customer oriented or perceived value pricing There is an increasing trend to price the product on the basis of the customer's perception of its value. This method takes into ac
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how company apply marginal costing techniques show with an example
Illustration: ABC analysis Combine items on the basis of their relative value to form three categories—A, B and C. The data in the table below illustrates the ABC analysis.
Implementation of ABC analysis The following steps are included in implementing the ABC analysis: 1. Categorize the items of inventories, establishing the expected use in un
solution.
discuss which of the cost classification is suitable for LunchBreak LTD and why?
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