What is minimum pricing, Strategic Management

Assignment Help:

Q. What is Minimum pricing?

The minimum transfer price an internal seller would accept will depend on whether it has spare capacity to utilise or not.   

If spare capacity exists the relevant cost and therefore minimum price to a seller would be the variable (marginal) cost of production e.g. extra cost of making and selling one more unit.  Variable (marginal) cost would be the only cost considered by a seller because fixed overhead is normally unavoidable and would not change if supply did or did not take place. The variable (marginal) cost represents the absolute bare minimum transfer price to a seller, in circumstances of spare capacity, at this price, the seller would be indifferent but not out of pocket.  Marginal costing may also be appropriate when no intermediate market exists for the seller e.g.  Seller can only sell to an internal customer and no external customers are available.

If full capacity exists, the seller would have to turn away external customers and business will be lost if further internal supply were to take place.   Because of this dilemma the seller would normally want a minimum price at least equal to the external market price it would normally charge when selling to external customers, this is assuming there is no difference in the cost of supplying internal or external customers e.g. differences in packaging, delivery or marketing costs, in which case the price would normally be adjusted. 

The minimum transfer price for a seller at full capacity is generally the external market price, if for some reason the seller maybe discontinuing other products to supply internally, then the minimum price would be the variable (marginal) cost of production and the lost contribution from discontinuing other products for internal supply to take place e.g. the variable cost and contribution lost being the opportunity cost.


Related Discussions:- What is minimum pricing

Strength in swot analysis , Strength: Arpanaa is the only vegetarian re...

Strength: Arpanaa is the only vegetarian restaurant that offers good ambience and holistic experience for the people who visit the city. There is a free trip to the temples in

Final Assignment, 1. Choose a concept/model in strategic management. You ca...

1. Choose a concept/model in strategic management. You can choose the concept from the ones discussed in the course or you can choose another one. Examples of concepts are: core co

How to solve complex econometric question, I have problem in subject econom...

I have problem in subject econometrics, how i get solved questions in econometrics.

Business strategy and operation strategy, what is the relationship between ...

what is the relationship between business strategy and operation strategy?

Feasibility concerns, Whether an organization has the resources and compete...

Whether an organization has the resources and competences to deliver a plan

Decision-making about production and operations stp, You are the newly-appo...

You are the newly-appointed Marketing Director of a multinational company operating in the national and regional plantation industry. In order to achieve a 100% business growth com

Synerge, What are the problems in assessing the potential for synergy from ...

What are the problems in assessing the potential for synergy from a merger

How can strategies ensure organizational effectiveness, Question 1: An ...

Question 1: An organisation has to scan the external environment to identify possible opportunities and threats and the internal environment for its strengths and weaknesses be

Assignment, i have many question i need to apply it on Saudi company and i...

i have many question i need to apply it on Saudi company and i need your help

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd